Governance report Clear and consistent governance framework · The following Governance Report...

Governance report

Clear and consistent governance framework

The Board aims to achieve the highest standards of corporate governance.” Tony DeNunzioNon-Executive Chairman

Chairman’s introductionOn behalf of the Board, I am pleased to present our Corporate Governance Report for the financial year ended 29 March 2018. As Chairman, my role is to manage the Board, ensuring it operates effectively and contains the right balance of skills, diversity and experience to successfully execute the Group’s long term strategy. The Group is committed to promoting high standards of corporate governance to ensure that the Group is managed with integrity and transparency. This has been reflected in the activities that we have undertaken throughout the year.

Principal governance activities during the financial year In November 2017, Ian Kellett notified me of his intention to step down as Group Chief Executive Officer. Ian’s resignation as a Director took effect on 27 March 2018 although he will remain employed by the Group until 31 May 2018. Ian joined Pets at Home in April 2006 as Chief Financial Officer and moved to the role of Group Chief Executive Officer in April 2016. As part of the Board’s succession plan, we are delighted that Peter Pritchard, CEO of the Retail Group, has succeeded Ian as Group Chief Executive Officer. Peter joined Pets at Home in 2011 as Commercial Director and moved to the role of CEO of Retail in 2015. During his time with the Group, Peter has overseen the establishment of our sourcing office in China, the launch of the VIP club, the

development of our omnichannel strategy, and more recently, the repositioning of our Merchandising business.

In November 2017, Nicolas Gheysens also resigned from the Board. Nicolas had been appointed to the Board as the nominated representative of the Company’s then Principal Shareholder, KKR My Best Friend Limited, an affiliate of Kohlberg Kravis Roberts & Co. L.P.. KKR My Best Friend Limited determined at that time not to replace Nicolas on the Board as it was otherwise entitled to do under the terms of the Relationship Agreement entered into with the Company.

During the financial period Amy Stirling and Paul Coby stepped down from the Board with effect from the close of the Annual General Meeting on 11 July 2017 in order to fulfil commitments in their full time roles. Amy was succeeded by Sharon Flood, Chair of ST Du Pont S.A, the Paris based luxury goods company and Audit Chair at Crest Nicholson plc and Network Rail. Paul was replaced by Stanislas Laurent who was appointed on 25 May 2017. Stanislas was formerly President and CEO of Photobox and COO of AOL Europe. Sharon has been appointed as Chair of the Audit and Risk Committee and is a member of the Remuneration Committee and the Nomination and Governance Committee. Stanislas is a member of the Audit and Risk Committee, Nomination and Governance Committee, Corporate Social Responsibility Committee and Pets Before Profit Committee.

More recently Tessa Green confirmed that she will step down from the Board with effect from close of the Annual General Meeting on 12 July 2018. Tessa has been a Director of Pets at Home since 2014 and during that time has been Chair of the Corporate Social Responsibility Committee and the Pets Before Profit Committee. I would like to thank Tessa for her valuable contribution to the business and convey the Group’s best wishes to her going forward. Tessa will be succeeded by Professor Susan Dawson, Dean of the Institute of Veterinary Science at the University of Liverpool and council member of the Royal College of Veterinary Surgeons. Professor Dawson will Chair the Pets Before Profit and

Corporate Social Responsibility Committees and brings valuable veterinary services sector experience to the Board.

During the year, further elements of our succession plan were implemented, with Andrei Balta being appointed into the role of CEO of the Vet Group following Sally Hopson’s resignation on 23 March 2018. Andrei joined Pets at Home in 2011 as Director of Group Strategy and moved to the veterinary business in 2013, firstly as Commercial Director and subsequently as Chief Operating Officer. Prior to Pets at Home, Andrei was a management consultant at Bain & Company for seven years.

We progressed the actions that were highlighted from the 2017 internal Board evaluation which emphasised the need to further increase the Board’s focus on talent and succession planning particularly below Board and Executive Management Team level. To support this work, the Board commissioned a review of the Group’s banding structure in order to develop clearer career pathways for colleagues and the Group’s People strategy has been revised to provide for a greater emphasis on colleague development and talent retention. The Non-Executive Directors continued to spend time with the leadership teams outside of formal meetings to gain a deeper insight into key rising talent throughout the organisation.

The following pages set out our governance processes within the Group. We recognise that corporate governance touches all aspects of our business, it underpins the management of our risk profile and it also affects our colleagues in many different ways.

I look forward to meeting shareholders at our next Annual General Meeting which will be held on 12 July 2018 at 11.00 a.m. at the Hallmark Hotel, Stanley Rd, Handforth, Wilmslow, Cheshire, SK9 3LD.

Tony DeNunzioChairman, Pets at Home Group Plc 21 May 2018

Pets at Home Group PlcAnnual Report and Accounts 201848

Statement of Compliance with the UK Corporate Governance CodeThe following Governance Report outlines how the Board has applied the main principals of good governance as required by the UK Corporate Governance Code published in April 2016 (Code), the Disclosure Guidance and Transparency Rules (DTRs) and the Listing Rules (LRs). The Board is committed to the highest standards of corporate governance and, except as set out below, the Board has complied with and intends to continue to comply with the requirements of the Code.

• Ensures the Group’s new store, veterinary surgery and Specialist Referral Centre investment process is managed effectively.

• Oversees Group Health and Safety matters. • Executive Management Team (as detailed on page 61) leads on strategy and its execution; and

• Retail and Vet Group Executive Management Teams implement strategy set by the Executive Management Team in their respective divisions.

Investment Committee Health and Safety Committee Executive Management Team and Retail and Vet Group Executive Management Teams

Executive Management Team

Audit and Risk CommitteeDue consideration of laws and regulations, framework of controls, the provisions of the Code and the requirements of the Listing Rules.

Nomination and Corporate Governance CommitteeOversight of Board composition and succession planning.

Remuneration CommitteeAssists the Board in determining responsibilities on Directors’ remuneration.

Pets Before Profit CommitteeOversight on pet welfare and achieving strategy on responsible pet retailing.

Corporate Social Responsibility CommitteeOversight on strategy for responsible retailing including engagement, sourcing, community and the environment.

Members Sharon Flood (Chair)Dennis MillardPaul MoodyStanislas Laurent

Members Tony DeNunzio (Chair)Dennis MillardTessa GreenPaul MoodySharon FloodStanislas Laurent

Members Paul Moody (Chair)Dennis MillardTessa Green Sharon Flood

Members Tessa Green (Chair)Tony DeNunzioDennis MillardStanislas Laurent

Members Tessa Green (Chair)Tony DeNunzioDennis MillardStanislas Laurent

Board Committees

Governance ReportThe Governance Report for FY18 covers the following areas:

Leadership Effectiveness of the Board Board Committees

Relations with the Company’s shareholders and the Annual General Meeting

Read more Page 50

Read more Page 52

Read more Page 55

Read more Page 58

Pets at Home Group Plc Board The Company is led and controlled by the Board. The Board has delegated certain responsibilities to Board Committees and the day-to-day management to the Executive Management Team. Further details can be found on pages 55 to 57.

49Pets at Home Group PlcAnnual Report and Accounts 2018

Governance report

Membership of the Board

Non-Executive Chairman 1

Executive Directors 2

Independent Non-Executive Directors 5

Board tenure

6 years or more 1

3-5 years 3

1-2 years 1

Less than one year 3

Group success and sustainability

Delegation of duties to Committees approved by

the Board

Board collectively responsible

for sustainable performance

Role of the Board and delegating duties

Governance report continued

The Role of the BoardDivision of responsibilitiesThe Company is led and controlled by the Board which is collectively responsible for the long term and sustainable performance of the Group. The roles of Chairman and Group Chief Executive Officer are separate and clearly defined, with the division of responsibilities set out in writing and agreed by the Board. The definitions of the roles are published on the Group’s website https://investors.petsathome.com/investors/shareholder-information/governance/our-committees.

The Code recommends that, on appointment, the chairman of a company with a premium listing on the Official List should meet the independence criteria set out in the Code. Tony DeNunzio joined Pets at Home in 2010 and has been Non-Executive Chairman of the Group since March 2010. Notwithstanding that the Board did not consider at the time of

Leadership

Matters reserved for Board approvalA formal schedule of matters is reserved to the Board for its approval, which includes the matters listed below. The separation of responsibilities between the Chairman and the Group Chief Executive Officer, coupled with the reserved matters described below, ensures that no individual has unfettered powers of decision-making.

Group strategy and risk management• Agreement of the Group’s strategy;

• Approval of extension of activities into new businesses or geographical areas;

• Approval of any decisions to cease to operate all or any material part of the Group’s business;

Financial and internal controls• Changes to the structure and capital

of the Group;

• Reviewing the effectiveness of internal controls;

• Approval of financial statements and results announcements;

• Approving significant expenditure, material transactions and contracts;

• Reviewing and agreeing Group tax and treasury policy;

Board membership, Committees, notices• Delegation of authority to the Group

Chief Executive Officer;

• Board, Executive Management Team and Senior Management appointments, arrangements and succession planning;

• Setting of Board Committees’ Terms of Reference;

• Approval of shareholder communications, circulars and Notices of Meetings;

Corporate governance• Review of the Group’s corporate

governance matters;

Board composition

listing, and continue to believe that Tony DeNunzio does not meet the independence criteria set out in the Code, the Board believes that Tony should remain as Non-Executive Chairman of the Group since he brings vast retail experience and knowledge to the Pets at Home team. The Directors consider that he exercises his role as Chairman independently of management and exercises his judgement in the interests of all shareholders.

Board compositionBoard balance and independenceThe Code recommends that at least half the board of directors of a UK-listed company, excluding the chairman, should comprise non-executive directors determined by the board to be independent in character and judgement and free from relationships or circumstances which may affect, or could appear to affect, the directors’ judgement.

The Board currently consists of five Independent Non-Executive Directors and one Non-Executive Chairman. The Directors’ biographies are contained on pages 60 to 61. The Board considers that all of its Non-Executive Directors are independent in character and judgement and that both individually and collectively, the Directors have the range of skills, knowledge, diversity of experience and dedication necessary to lead the Group and also contribute significantly to the work of the Board together with the requisite strategic and commercial experience. More than half of the Directors excluding the Chairman are considered to be independent in accordance with the Code.


Board responsibilities

Role Main responsibilities

Chairman of the Board

• Manages and provides leadership to the Board of Directors;

• Acts as a direct liaison between the Board and the management of the Company, through the Group Chief Executive Officer;

• Ensures that the Directors are properly informed and that sufficient information is provided to enable the Directors to form appropriate judgements;

• In conjunction with the Group Chief Executive Officer and Company Secretary, develops and sets the agendas for meetings of the Board;

• Recommends an annual schedule of the date, time and location of Board and Committee meetings; and

• Ensures effective communications with shareholders and other stakeholders.

Group Chief Executive Officer

• Responsible for the day-to-day management of the Company;

• Together with the Executive Management Team, is responsible for executing the strategy, once it has been agreed by the Board;

• Creates a framework that optimises resource allocation to deliver the Group’s agreed strategic objectives over varying timeframes;

• Ensures the successful delivery against the financial business plan and other key business objectives, allocating decision making and responsibilities accordingly;

• Together with the Executive Management Team identifies and executes new business opportunities and potential acquisitions or disposals; and

• Manages the Group with reference to its risk profile in the context of the Board’s risk appetite.

Senior Independent Director

• An Independent Non-Executive Director;

• Provides a sounding board for the Chairman;

• Serves as an intermediary for the other Directors when necessary; and

• Is available to shareholders if they have concerns, which contact through the normal channels of the Group Chief Executive Officer has failed to resolve, or for which such contact is inappropriate.

Non-Executive Directors

• Provide constructive challenge to the Executive Management Team;

• Help develop proposals on strategy;

• Scrutinise management’s performance in meeting agreed goals and objectives;

• Monitor performance reports;

• Satisfying themselves on the integrity of financial information and that controls and risk management systems are robust and defensible; and

• Determining appropriate levels of remuneration for Executive Directors, appointing and removing Executive Directors, and succession planning.

Group Chief Financial Officer

• Management of the financial risks of the Group;

• Responsible for financial planning and record-keeping, as well as financial reporting to the Board of Directors and shareholders; and

• Ensures effective compliance and control and responding to ever increasing regulatory developments, including financial reporting, capital requirements, and corporate responsibility.

Board observer • The CEO of the Vet Group is a Board observer;

• Right to receive notice of, attend and speak at Board meetings; and

• No entitlement to vote on any matter requiring a resolution of the Board.

Directors’ biographies Page 60


Governance report


Appointment of Directors by the Principal ShareholderPursuant to the terms of the Relationship Agreement with the Principal Shareholder, KKR My Best Friend Limited, an affiliate of Kohlberg Kravis Roberts & Co. L.P., had, during the financial period, the ability to appoint:

• two Non-Executive Directors to the Board for so long as the Principal Shareholder (and/or any of its associates, when taken together) held 20% or more of the voting rights attaching to the Company’s Ordinary Shares; or

• one Non-Executive Director for so long as it (and/or any of its associates, when taken together) held 10% or more but less than 20% of the voting rights attaching to the Company’s Ordinary Shares.

Although Tony DeNunzio had not been appointed as a Director by the Principal Shareholder, the Principal Shareholder had agreed that for so long as it had the right to appoint two Directors to the Board and Tony DeNunzio was a Director, the Principal Shareholder would not exercise its right to appoint a second Director to the Board. The Principal Shareholder also had the right to appoint one Board observer for so long as it held voting rights over more than 10% of the Company’s shares. The Principal Shareholder had appointed Nicolas Gheysens as a Non-Executive Director and to be its nominated representative on the Board.

In November 2017, Nicolas Gheysens resigned from the Board and the Principal Shareholder determined at that time not to exercise its rights under the Relationship Agreement entered into with the Company to replace Nicolas’ position on the Board.

For further details of the Relationship Agreement and confirmation of compliance with the provisions set out in the Relationship Agreement, see page 70 of the Directors’ Report. On 29 January 2018, the Principal Shareholder divested of its remaining stake in the Company and reduced its shareholding in the Company to nil. The Relationship Agreement has accordingly terminated.

Directors’ induction and ongoing training It is important to the Board that Non-Executive Directors have the ability to influence and challenge appropriately. New Directors receive a full, formal and tailored induction on joining the Board, including meeting with the Executive Management Team and advisors. The induction includes visits to the Group’s stores, veterinary surgeries, distribution centres, Specialist Referral Centres and other operational locations together with training on the Group’s core values including environmental, social and governance issues. Individual training needs are reviewed regularly and training is provided where a need is identified or requested. All Directors receive frequent updates on a variety of issues relevant to the Group’s business, including regulatory and governance issues.

AppointmentsIn November 2017, Ian Kellett notified the Chairman of his intention to step down as Group Chief Executive Officer. Ian’s resignation as a Director took effect on 27 April 2018 although he will remain employed by the Group until 31 May 2018. Ian’s resignation required the Group to implement its succession plan and Peter Pritchard, CEO of the Retail Group, succeeded Ian as Group Chief Executive Officer with effect from 27 April 2018.

As noted above, in November 2017, Nicolas Gheysens also resigned from the Board. Nicolas had been appointed to the Board as the nominated representative of the Company’s then Principal Shareholder, KKR My Best Friend Limited, an affiliate of Kohlberg Kravis Roberts & Co. L.P.. KKR My Best Friend Limited determined at that time not to exercise its rights under the Relationship Agreement entered into with the Company to replace Nicolas’ position on the Board.

During the financial period Amy Stirling and Paul Coby stepped down from the Board with effect from the close of the Annual General Meeting on 11 July 2017 in order to fulfil commitments in their full time roles. Amy was succeeded by Sharon Flood whilst Paul was replaced

by Stanislas Laurent. Sharon has been appointed as Chair of the Audit and Risk Committee and is a member of the Remuneration Committee and the Nomination and Governance Committee. Stanislas is a member of the Audit and Risk Committee, Nomination and Governance Committee, Corporate Social Responsibility Committee and Pets Before Profit Committee.

More recently Tessa Green confirmed that she will step down from the Board with effect from the close of the Annual General Meeting on 12 July 2018. Tessa has been a Director of Pets at Home since 2014 and during that time has been Chair of the Corporate Social Responsibility Committee and the Pets Before Profit Committee. I would like to thank Tessa for her valuable contribution to the business and convey the Group’s best wishes to her going forward. Tessa will be succeeded by Professor Susan Dawson, Dean of the Institute of Veterinary Science at the University of Liverpool and council member of the Royal College of Veterinary Surgeons. Professor Dawson will Chair the Pets Before Profit and Corporate Social Responsibility Committees.

Appointment terms and elections of DirectorsAll Directors have service agreements or letters of appointment and the details of their terms are set out in the Directors’ Remuneration Report on pages 91 to 93. The service agreements and letters of appointment are available for inspection at the Company’s registered office during normal business hours.

At each Annual General Meeting of the Company all Directors will stand for re-election in accordance with the Code.

Considering diversityThe Board understands the importance of having a diverse membership and recognises that diversity encompasses not only gender but also background and experience. Whilst the Board believes that appointments should be made solely on merit, we seek to ensure that the Board maintains an appropriate balance through

Effectiveness of the Board


Male 6 (75%)

Female 2 (25%)

Male 3 (75%)

Female 1 (25%)

Financial performance/reporting

Governance, inc. shareholder engagement

Risk management and internal controls

Leadership and people development,inc. succession

Strategic matters

Project approvals

How the Board is spending its time through the year

5%

10%

20%20%

25%

20%

Male 6 (67%)

Female 3 (33%)

Male 2 (50%)

Female 2 (50%)

Male 3,466 (26%)

Female 9,950 (74%)

Group

a diverse mix of experience, backgrounds, skills, knowledge and insight, to further strengthen the diversity of gender and experience already on the Board. Notably, two of the five Independent Non-Executive Directors, Tessa Green and Sharon Flood, are female together with the Chief People and Legal Officer and Company Secretary, Louise Stonier. These appointments were made entirely on merit, and not on the basis of gender, the appointees being by far the strongest candidates for the positions with their skill sets and overall experience fitting the objective role description approved by the Board at the outset of the recruitment process.

This policy applies equally to all appointments in the Company including in respect of the Retail Group Executive Management Team where Lisa Miao is

Gender diversity

Board

Executive Management Team

2018 Board considerations During the year the Board spent its time considering a wide range of matters. These included:

• Strategy;

• Succession planning;

• Performance overall of individual businesses and functions in the Group;

• Budgets and long term plans for the Group;

• Financial statements, announcements and financial reporting matters;

• Reviewing reports from the Committees, notably on audit strategy, remuneration, succession planning, the Group’s corporate social responsibility strategy and measures in place to ensure that Pets Before Profit is maintained as the Company’s number one value;

• Approving significant items of capital expenditure and contracts, investments, treasury and dividend policy;

• Job levelling and banding across the Group;

• Shareholder feedback and reports from brokers and analysts;

• Regulatory updates;

• Risk management and controls in the Group including reputational risks and corporate governance; and

• Delegated authorities.

Retail Group Executive Management Team

Vet Group Executive Management Team


Governance report


appointed Commercial Director and Suzie Williams as Business Systems Director and the Vet Group Executive Management Team, where Fiona Briault and Julie Ross are appointed as respectively Director for People, Operations and Partnerships and Commercial Director. We were delighted to see Julie Ross appointed into this role in this last financial year.

Board meetings and attendanceIn this financial year, the Board met formally nine times, plus attended an annual strategy meeting. Ad hoc meetings of both the Board and Committees were arranged to deal with matters between scheduled board meetings as appropriate. Board meetings were preceded by Committee meetings with the meetings lasting the majority of the day in most cases.

Topics for the Board meetings are determined at the beginning of the year and new items are added to this

as and when appropriate in consultation with the Board and Executive Management Team.

All Directors receive papers in advance of Board meetings via an electronic board paper system which enables the fast dissemination of quality information in a safe and secure manner. These include a monthly Board report with updates from each of the Executive Management Team, which monitors the achievements against the Group’s key performance indicators, both financial and strategic. Performance against budget is reported to the Board monthly and any substantial variances are explained. Forecasts for the year are revised and reviewed monthly.

Members of the Retail Group Executive Management Team and Vet Group Executive Management Team are also invited to present at Board meetings from time to time so that Non-Executive

Directors keep abreast of developments in the Group. For the Board, these meetings are an opportunity to meet colleagues below the level of the Executive Management Team and for colleagues asked to present, this is a valuable part of their career development.

The Chairman meets regularly with the Non-Executive Directors without the Executive Directors present and this practice will continue in the future. The Senior Independent Director also attended these sessions.

It is important to the Group that all Directors understand external views of the Group. Throughout the year, regular reporting is provided to the Board by the Company’s Director of Investor Relations, covering broker reports and the output of meetings with significant shareholders.

Board meetings and attendance Number of meetings attended Attendance for all scheduled Board and Board Committee meetings in the financial period is given in the table below.

BoardRemuneration

Committee Audit & Risk Committee

Nomination & Corporate Governance Committee

Corporate Social

Responsibility Committee

Pets Before Profit

Committee

Number of meetings 1 9 3 4 2 2 3

Director 2

Tony DeNunzio (Chairman) 9/9 n/a n/a 2/2 2/2 3/3

Dennis Millard (Deputy Chairman) 9/9 3/3 4/4 2/2 2/2 3/3

Ian Kellett 8/9 n/a n/a n/a n/a n/a

Mike Iddon 9/9 n/a n/a n/a n/a n/a

Tessa Green 9/9 3/3 n/a 1/2 2/2 3/3

Paul Moody 8/9 2/3 4/4 2/2 n/a n/a

Sharon Flood 3 6/9 2/3 3/4 2/2 n/a n/a

Stanislas Laurent 4 7/9 n/a 3/4 2/2 1/2 3/3

Amy Stirling 5 2/9 1/3 1/4 0/2 n/a n/a

Paul Coby 6 2/9 0/3 1/4 0/2 1/2 0/3

Nicolas Gheysens 7 6/9 n/a n/a 1/2 n/a n/a

1 Excludes the strategy day which all Directors attended.

2 Only attendance of formal members of the meetings is included. Attendance as an observer is not included.

3 Sharon Flood was appointed as a Non-Executive Director on 25 May 2017.

4 Stanislas Laurent was appointed as a Non-Executive Director on 25 May 2017.

5 Amy Stirling resigned as a Non-Executive Director with effect from 11 July 2017.

6 Paul Coby resigned as a Non-Executive Director with effect from 11 July 2017.

7 Nicolas Gheysens resigned as a Non-Executive Director with effect from 28 November 2017.


The Board has established three Board Committees: an Audit and Risk Committee, a Nomination and Corporate Governance Committee, and a Remuneration Committee. In addition, the Board has also established the Pets Before Profit Committee and the Corporate Social Responsibility (CSR) Committee which comprise both

Non-Executive Directors, Executive Directors and colleagues. The Board has also established the Investment Committee and Health and Safety Committee which comprises Executive Directors and colleagues. If the need should arise, the Board may set up additional committees as appropriate.

Board Committees Each Committee has written terms of reference which are approved by the Board and subject to review each year. These are available on request from the Company Secretary and are published on the Group’s website https://investors.petsathome.com/investors/governance/our-committees

Key objectives and responsibilities of the Board Committees

Key objectives Main responsibilities/duties

Audit and Risk Committee

• to assist the Board fulfil its corporate governance and overseeing responsibilities in relation to an entity’s financial reporting, internal control system, risk management system and internal and external audit functions;

• monitor the integrity of Group financial statements;• review and challenge accounting policies, unusual transactions;• assumptions/qualifications on viability;• compliance with accounting standards;• review clarity and completeness of financial statements;• oversee material information presented with financial statements;• review content of Annual Report and Accounts to advise if fair, balanced and

appropriate for shareholders;• assessment and advice on risk management system;• review and advice on adequacy and effectiveness of the Company’s internal

financial and regulatory controls;• monitoring and review of internal and external audit; and• review of whistleblowing, fraud and compliance.

Remuneration Committee

• to assist the Board in determining its responsibilities in relation to Directors’ remuneration.

• responsibility for setting, monitoring and reviewing the remuneration policy;• consultation on major changes to employee benefit structure;• approval and determination of performance related pay schemes (with regard

to the Code and LRs);• responsible for selection and appointment of remuneration consultants;• review, design and assessment of share incentive plans;• review of Director pension arrangements; and• approval of Director service contracts and severance.

Nomination and Corporate Governance Committee

• to assist the Board in considering the structure, size and composition of the Board whilst advising on succession planning.

• reviewing structure, size and composition of the Board;• Board succession planning;• evaluation of Board appointments – with consideration to matters such as skill,

experience, knowledge, diversity;• review of Non-Executive Directors’ time required;• review matters relating to continuation of Directors’ office;• conduct Board performance evaluation process; and• review all conflicts of interest.

Pets Before Profit Committee

• to oversee Group strategy on pet welfare.

• monitoring, reviewing and considering pet welfare standards across the Group;• monitoring and reviewing compliance with legislation relating to the sale of pets,

welfare standards and veterinary medicine and engaging in the development of such legislation where appropriate;

• monitoring and reviewing colleague feedback on pet welfare standards;• overseeing welfare in relation to pet supply, transportation and audit;• monitoring impact of PR and social media; and• monitoring pet processes, including audits and vet clinical standards.

Corporate Social Responsibility Committee

• to oversee Group corporate social responsibility matters.

• reviewing Group CSR policy and strategy; and• monitoring implementation of CSR activity.


Governance report


Management committees Details of our management committees are set out below:

Investment CommitteeThe Investment Committee assists the Board with the Group’s store and veterinary surgery rollout process to ensure the Group’s investment process is managed effectively and rigorously throughout the Group. The Investment Committee is chaired by Mike Iddon and its other members are Andrei Balta and Peter Pritchard. A number of the Group’s colleagues are entitled to attend meetings of the Investment Committee as observers including the Director of Property, the Group Development Director and the Vet Group Partner Recruitment, Property and People Director.

The Investment Committee meets formally at least nine times a year and otherwise as may be required. Duties of the Investment Committee include reviewing and considering all proposals presented for the acquisition of new stores, stand-alone First Opinion veterinary surgeries, Specialist Referral Centres, support offices, distribution centres and any other type of property for which occupation is proposed for use by a member of the Group; approving all material variations and works of a capital nature proposed to be carried out to any property in which the Group has a right of occupation; approving all material variations to proposed property and stand-alone surgery acquisitions; periodically reviewing proposed changes to the reporting and presentation of property investment criteria; reviewing all proposals presented for lease renewals and reviewing alternative strategies for new store investment, formats and geographical markets and reporting on such strategies to the Board for final approval on the terms of any such matter; and reviewing all proposals for the dispositions of all or part of any of the lease on stores including any

sub-letting, assignments, surrenders or relocations and approving or rejecting any such proposals as appropriate. Each of the matters approved by the Investment Committee is subject to the further approval of the Board where it falls within the level of expenditure requiring full Board approval. The Investment Committee formally updates the Board at least once a year in addition to regular updates on matters approved within the monthly Board packs.

Executive Management Team, Retail Group and Vet Group Executive Management Teams In addition to the Board, the Group has the Executive Management Team as detailed in the Governance Report on page 61. Supporting the Executive Management Team is an appointed divisional executive management team for both the Retail Group and the Vet Group for which roles are clearly defined. The Retail Group Executive Management Team and the Vet Group Executive Management Team support the Executive Management Team in the implementation of strategy across their respective divisions.

Health and safetyHealth and safety is a key priority for the Board and senior management and is an item for review and discussion at each Board meeting. The Board has established a health and safety committee that meets at least on a quarterly basis and is chaired by the Chief People and Legal Officer with the agenda led by the Group Head of Health and Safety. The committee is attended by key individuals in the business that are responsible for certain areas of health and safety including the veterinary business, retail and grooming and the committee is tasked with reviewing the Group’s overall health and safety performance. A health and safety policy is in place for the Group which is reviewed on a regular basis.

The distribution centres have their own dedicated health and safety manager and a separate health and safety sub-committee which also meets on a regular basis. The veterinary business also has a designated health and safety manager and three health and safety assessors.

Further details of the work of the health and safety committee are contained on pages 68 to 69 of the Directors’ Report.

Internal control and risk managementThe Board is responsible for the Group’s system of internal control and for reviewing its effectiveness and has carried out a robust assessment of the principal risks facing the Group including those that would threaten its business model, future performance, solvency or liquidity as detailed on pages 33 to 37 of the Strategic Report. The Board delegates to the Executive Management Team, the responsibility for designing, operating and monitoring these systems. The systems are based on a process of identifying, evaluating and managing key risks and include the risk management processes set out on pages 33 to 37 of the Strategic Report and page 75 of the Audit and Risk Committee Report.

The systems of internal control were in place throughout the period and up to the date of approval of the Annual Report. The systems of internal control are designed to manage rather than eliminate the risk of failure to achieve business objectives. They can only provide reasonable and not absolute assurance against material errors, losses, fraud or breaches of law and regulations. A number of internal controls operate across the business. The key controls the business relied upon during the year are set out below:


• The annual Group wide strategic review of the business took place in November 2018 culminating in the preparation of a detailed three-year strategic plan which was reviewed and approved by the Board. Following this approval, the business carried out its annual business plan and budget cycle, again culminating in formal review and approval by the Board on 26 April 2018.

• Management accounts have been reviewed at meetings of the Board. These reviews covered the comparison of actual performance against budget in the period end management accounts and consideration of outturn for the year. The period end accounts are prepared by the management accounts team and reviewed by the Group Chief Financial Officer.

• All capital investments during the year have been approved by the Group Chief Financial Officer; an authority framework is in place which details the approvals required for specific levels of capital spend including those capital projects requiring full Board approval. In line with delegation by the Board, the Investment Committee, chaired by the Group Chief Financial Officer, has reviewed and approved investments in respect of the acquisition and fit-out of new stores, and new standalone and in store veterinary practices and for Specialist Referral Centres.

• There is an Internal Audit department in place that has its scope agreed with the Audit and Risk Committee and has reported at each Audit and Risk Committee meeting throughout the year. All internal audit reports are presented to the Audit and Risk Committee for review and consideration of any material findings. Where audit findings have been raised, management have agreed appropriate actions and these are prioritised based on risk. Further details of the areas covered in the internal audit reports can be found in the Audit and Risk Committee Report on page 75.

• A clearly articulated delegated authority framework in respect of all purchasing activity is in place across the Group. This is complemented by systemic controls including a contract approval policy that reflects the agreed authority framework and clear segregation of duties between relevant functions and departments.

• A schedule of matters reserved for the Board is in place for approving significant transactions and strategic and organisational change.

• Board discussion of the key risks and uncertainties facing the Group and the risk management system together with deep dives on a number of key risk areas. Further details are contained in the Audit and Risk Committee Report on page 72.


Governance report


A copy of the Group’s Code of Ethics and Business Conduct is published on the Group’s website https://investors.petsathome.com/responsibility/policies-and-procedures/code-of-ethics-and-business-conduct. This policy and the procedures in place to deal with concerns raised under the policy were reviewed by the Audit and Risk Committee during the year.

Share dealing codeThe Company has adopted a share dealing code in relation to its shares. The share dealing code applies to the Directors, its other Persons Discharging Managerial Responsibility and certain colleague insiders of Group companies and they are responsible for procuring the compliance of their respective connected persons with the Company’s share dealing code.

Board evaluation and effectivenessThe effectiveness of the Board is important to the success of the Group, and the Board’s annual evaluation provides a useful opportunity for the Directors to reflect on their collective and individual effectiveness and consider changes.

Process and focus The Board evaluation for 2018 was carried out internally using an online questionnaire. The online questionnaire was prepared by the Company Secretary. The questionnaire asked questions to assess performance in a range of areas including Board strategy, leadership and culture and sought to gauge the extent of perceived progress of the Board and the Board Committees in the areas of development identified in the Board evaluation undertaken in 2017. Due to the changes to the Board during the financial period and in preparation for Peter Pritchard stepping up to the role of Group Chief Executive Officer, the evaluation also focused on Board composition and expertise and Board dynamics.

The Board’s primary role is to promote the success of the Company and the interests of shareholders. The Board is accountable to shareholders for the performance and activities of the Group. The Board is responsible for ensuring the Company maintains a satisfactory dialogue with shareholders. The Board believes it is important to explain business developments and financial results to the Company’s shareholders and to understand any shareholder concerns. We communicate with shareholders on a regular basis.

The Board communicates with its shareholders in respect of the Group’s business activities through its Annual Report, yearly and half yearly announcements and other regular trading statements. This information is also made publicly available via the Company’s website.

During the year, the Company met regularly with analysts and institutional investors and such meetings will continue. The Group Chief Executive Officer and Group Chief Financial Officer have lead responsibility for investor relations. They are supported by a dedicated Director of Investor Relations who, amongst other matters, organises presentations for analysts and institutional investors and ensures that procedures are in place to keep the Board regularly informed of such investors’ views. In addition, the Company arranges visits to its stores and other operations for analysts and shareholders and this year held a capital markets day in order to explain aspects of business performance and strategy. This last financial year also saw the Company undertake an extensive consultation process with major shareholders in connection with the Group’s review, development and ultimate adoption, at the 2017 Annual General Meeting, of its current Directors’ Remuneration Policy.

All of the Non-Executive Directors are available to meet with major shareholders, if they wish to raise issues separately from the arrangements as described above.

All Directors will be available at the Annual General Meeting to meet with shareholders and answer their questions.

Directors’ conflicts of interest The Articles of Association of the Company give the Directors the power to consider and, if appropriate, authorise conflict situations where a Director’s declared interest may conflict or does conflict with the interests of the Company.

Procedures are in place at every meeting for individual Directors to report and record any potential or actual conflicts which arise. The register of reported conflicts is reviewed by the Board at least annually. The Board has complied with these procedures during the year.

Whistleblowing policy The Company has a duty to conduct its affairs in an open and responsible way. We are committed to high standards of corporate governance and compliance with legislation and appropriate codes of practice. By knowing about any wrong doing or malpractice at an early stage, we stand a good chance of taking the necessary steps to stop it. We relaunched our whistleblowing policy in FY17. The policy is designed to encourage colleagues to identify such situations and report them without fear of repercussions or recriminations provided that they are acting in good faith. The policy sets out how any concerns may be raised and the response which can be expected from the Company and in what timescales.

Shareholder relations


Outputs of the evaluationAt a dedicated Board session, a report of the findings of the evaluation and its recommendations were discussed and specific actions agreed. Overall, the majority of areas have seen an improvement in the scoring, however, the following have been identified as requiring additional focus:

• redefining the relationship between the Board and the Executive Management Team following a period of management change;

• succession and talent management and development below Board and Executive Management Team level;

• visibility and depth of the People strategy and Company culture;

• presentation and understanding of the Group’s digital and business systems strategy; and

• re-visiting the roles and terms of reference for the Pets Before Profits and Corporate Social Responsibility Committees.

Beyond the annual evaluation, the performance of the Group Chief Executive Officer is continuously monitored throughout the year by the Chairman and the Senior Independent Director. The Senior Independent Director and the Non-Executive Directors also met to discuss the performance of the Chairman without the Executive Directors or Chairman being present.

Pets at Home’s investor website is also regularly updated with news and information, including this Annual Report which sets out our strategy and performance together with our plans for future growth (http://investors.petsathome.com).


Governance report

Board of Directors

Board and Executive management

Tony DeNunzio CBENon-Executive Chairman

Appointment to the Board2014

CommitteesNomination and Corporate Governance, Pets Before Profit, Corporate Social Responsibility

Current roles• Deputy Chairman

and Senior Independent Director at Dixons Carphone Plc

• Non-Executive Director of PrimaPrix SL.

• Senior Adviser to Kohlberg, Kravis, Roberts & Co. L.P.

Past roles• Non-Executive Chairman

of Maxeda • Non-Executive Director

of Alliance Boots GmbH• President and Chief

Executive Officer of Asda• Deputy Chairman of

Galiform Plc (now Howdens Plc)

• Chairman of the advisory board of Manchester Business School

Brings to the BoardVast retail and financial experience. Tony was also awarded a CBE for services to retail in 2005.

Dennis MillardDeputy Non-Executive Chairman and Senior Independent Non-Executive Director


CommitteesNomination and Corporate Governance, Audit and Risk, Remuneration, Pets Before Profit, Corporate Social Responsibility

Current roles• Non-Executive Chairman

of Halfords Group Plc• Senior Independent

Chairman of Superdry plc

Past roles• Senior Independent

Director of Debenhams Plc• Chairman of Connect

Group Plc• Senior Independent

Director of Premier Farnell Plc

• Senior Independent Director of Xchanging Plc

• Non-Executive Director of Exel plc

Brings to the BoardWide ranging public company experience and retail and financial expertise. Dennis is also a Chartered Accountant.

Pets

Nandi Boris

Sharon FloodIndependent Non-Executive Director


CommitteesNomination and Corporate Governance, Audit and Risk, Remuneration

Current roles• Chair of ST Du Pont S.A.• Chair of Audit Committee

at Network Rail• Chair of Audit Committee

at Crest Nicholson• Chair of Finance at

Science Museum Group

Past roles• Group CFO at Sun

European• Finance Director at John

Lewis Department Stores• Chair of Audit at Shelter

Brings to the BoardRetail, finance and public company experience. Sharon is also a Chartered Accountant.

Pets

Casie

Stanislas LaurentIndependent Non-Executive Director


CommitteesNomination and Corporate Governance, Audit and Risk, Pets Before Profit, Corporate Social Responsibility

Current roles• Partner at Highland

Europe

Past roles• President and CEO

of Photobox• COO of AOL Europe

Brings to the BoardEntrepreneurial background with digital and technology experience.

Paul MoodyIndependent Non-Executive Director


CommitteesAudit and Risk, Remuneration, Nomination and Corporate Governance

Current roles• Non-Executive Chairman

of Johnson Service Group• Non-Executive Chairman

of 4imprint Group Plc

Past roles• Chief Executive Officer

of Food Freshness Technology

• Over 17 years at Britvic Plc, with the last eight years as Chief Executive Officer

Brings to the BoardDeep consumer goods and public company experience.


Board of Directors

Group Executive Management Team

Tessa GreenIndependent Non-Executive Director


CommitteesRemuneration, Nomination and Corporate Governance, Pets Before Profit, Corporate Social Responsibility

Current roles• Chair of Moorfields

Eye Hospital NHS Foundation Trust

• Trustee of the Royal Foundation of the Duke and Duchess of Cambridge and Prince Harry

• Member of Advisory Board of Healthcare U.K.

• Member of Bupa Medical Advisory Panel

• Member of Bupa Association

• Director of UCL Partners

Past roles• Chair of the Royal

Marsden NHS Foundation Trust

• Trustee of The Institute of Cancer Research

• Trustee of the Royal Botanical Gardens, Kew

Brings to the BoardConsiderable background in healthcare and not-for-profit/charitable sectors.

Pets

Flash Easton

Strider

Peter PritchardGroup Chief Executive Officer


Current roles• Group Chief Executive

Officer of Pets at Home • Trustee of Community

Integrated Care

Past roles• Joined Pets at Home as

Commercial Director in 2011 and became CEO of the Retail business in 2016

• Senior commercial and management roles at Asda, Sainsbury’s, Iceland, Marks and Spencer and Wilkinson Hardware Stores

Brings to the BoardSignificant retail background and long term operational experience across Pets at Home.

Pets

Oscar Leo

Mike IddonGroup Chief Financial Officer


Current roles• Chief Financial Officer

since 2016

Past roles• Chief Financial Officer

of New Look from 2014-2016

• A number of finance roles at Tesco plc over 13 years, with his final role as Group Planning, Treasury and Tax Director

Brings to the BoardFinancial knowledge and retail industry expertise.

Louise StonierChief People and Legal Officer and Company Secretary

Current roles• Chief People and Legal

Officer and Company Secretary of Pets at Home Group since 2017

• Chair and Trustee of the charity Support Adoption For Pets


Legal Director and Company Secretary in 2004

• Associate in the corporate team at DLA Piper LLP from 2000–2004

• Solicitor at CMS Cameron McKenna from 1997–2000

Brings to the BoardLegal knowledge and people expertise.

Pets

Skye

Andrei BaltaChief Executive Officer Vet Group

Current roles• CEO of the Pets at Home

Vet Group since 2018


Group Strategy Director in 2011 and moved to the Vet Group in 2013

• Management Consultant at Bain & Company

Brings to the BoardStrategic advisory background and operational experience at Pets at Home.


Governance report

Directors’ Report

This section of the Annual Report includes additional information required to be disclosed under the Companies Act 2006 (Companies Act), the UK Corporate Governance Code 2016 (Code), the Disclosure Guidance and Transparency Rules and the Listing Rules of the Financial Conduct Authority.

Pets At Home Group Plc

Registered Number: 8885072

Registered Office: Epsom Avenue, Stanley Green Trading Estate, Handforth, Cheshire, SK9 3RN

Telephone Number: +44 161 486 6688

Date of Incorporation: 10 February 2014

Country of Incorporation: England and Wales

Type: Public Limited Company

Statutory information The Company has chosen in accordance with section 414C(11) of the Companies Act to provide disclosures and information in relation to a number of additional matters which are covered elsewhere in this Annual Report. These matters and cross-references to the relevant sections of this Annual Report are shown in the table below.

Statutory information Section headingPage

number

Amendment of the Articles Directors’ Report 66

Appointment and Removal of Directors

Directors’ Report64

Board of Directors Directors’ Report 60–61

Board of Directors 60–61

Branches outside of the UK Directors’ Report 69

Change of Control Directors’ Report 69

Colleague Involvement Strategic Report – Corporate Social Responsibility 39–46

Directors’ Report 63

Colleague Diversity and Disabilities Directors’ Report 63

Colleague Share Ownership and Plans Directors’ Remuneration Report 84

Community Strategic Report – Corporate Social Responsibility 36–46

Compensation for loss of office Directors’ Report 64

Compliance with the terms of the Relationship Agreement (including the independence provisions)

Directors’ Report

70

Directors’ Biographies Board of Directors 60–61

Directors’ information to Auditors Directors’ Report 70

Directors’ Insurance and Indemnities Directors’ Report 64

Directors’ Interests Directors’ Report 64

Directors’ Responsibility Statement Directors’ Report 71

Executive Share Plans Directors’ Remuneration Report 87, 90–92

Financial Instruments Note 21 to the consolidated financial statements 150

Future Developments of the Business Strategic Report 18–23

Financial position of the Group, its cash flow, liquidity position and borrowing facilities

Chief Financial Officer’s Review

24–27

Greenhouse Gas Emissions Corporate Social Responsibility 47

Going Concern Directors’ Report 67

Health and Safety Governance Report 56

Directors’ Report 68

Human Rights and Modern Slavery Statement


Independent Auditors Directors’ Report 70

Audit and Risk Committee Report 76

Internal Controls and Risk Management Governance Report 56

Political Donations Directors’ Report 66

Profits and Dividend Directors’ Report 66

Post Balance Sheet Events Directors’ Report 66


Statutory information Section headingPage

number

Powers for the Company to issue or buy back its shares


Powers of the Directors Directors’ Report 64

Principal Activities Directors’ Report 63

Relationship Agreement Directors’ Report 70

Research and Development Directors’ Report 63

Strategic Report 5

Restrictions on transfer of securities Directors’ Report 65

Share capital Directors’ Report 65

Note 20 to the consolidated statements 140

Significant related party transactions Directors’ Report 66


Significant Shareholders Directors’ Report 66

Subsidiary and Associated Undertakings


Statement of Corporate Governance Governance Report 49

The Audit and Risk Committee Report Governance Report 72–76

The Governance Report Governance Report 48–61

The Directors’ Remuneration Report Governance Report 82–101

The Nomination and Corporate Governance Committee Report

Governance Report77–79

Strategic Report Governance Report 1–47

Treasury and Risk Management Strategic Report 37

Viability Statement Directors’ Report 67

Voting Rights Directors’ Report 65

Disclosures required under Listing Rule 9.8.4RIn accordance with Listing Rule 9.8.4C, the information required to be disclosed in the Annual Report under Listing Rule 9.8.4R is disclosed on the following pages of this Annual Report:

DisclosurePage

number

Long term incentive schemes 92

Significant contracts 69

Dividend Waivers Note 9 to the consolidated financial statements

Principal activitiesThe principal activity of the Group is that of a specialist omnichannel retailer of pet food, pet related products and pet accessories. The Group is also the operator of a small animal veterinary business, specialist veterinary referral centres and pet grooming salons. The principal activity of the Company is that of a holding company. The Company’s registrar is Computershare Investor Services Plc situated at The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ.

Research and developmentThe Strategic Report sets out on page 5 the innovation carried out by the Group in relation to product and service development. In addition, the Group also funds a number of research projects and during this financial year we have continued to co-fund a Doctor of Philosophy (PhD) at Exeter University which is looking at how to identify and reduce the stress factors in ornamental aquarium fish. The PhD was co-funded with an executive agency called CEFAS (Centre for Environment Fisheries and Aquaculture Science) which is sponsored by DEFRA (Department for Environment, Food & Rural Affairs) and advises DEFRA, as well as other public and private sector customers on issues connected to the aquatic environment. The Group is also, in partnership with Mars Fishcare and the University of West Scotland, working together on a combined PhD looking at stress caused during transportation of fish from source right through into the Group’s stores. This project complements and builds on the Group’s first PhD project with Exeter University, and combined with the Exeter University project will give the Group an in-depth knowledge and understanding which can be used to further increase the welfare of fish in the Group’s stores.

Colleague involvementThe Group places significant emphasis on colleague engagement at all levels, in particular through its regular listening surveys. Colleagues are kept informed of issues affecting the Group through formal and informal meetings and through the Group’s internal written communications. Further information on colleague engagement is included in the Corporate Social Responsibility Report on page 45. Details of the Group’s colleague share plans are contained in the Directors’ Remuneration Report on page 84.

Colleague diversity and disabled personsThe Group’s policy for colleagues and all applicants for employment is to match the capabilities and talents of each individual to the appropriate role. We are committed to ensuring equality of opportunity for all colleagues. We aim to ensure that no colleague, potential colleague, customer, visitor or contractor will receive less favourable treatment on the grounds of:

• Sex• Race• Pregnancy and maternity• Ethnic origin• Nationality• Disability• Age

• Religious beliefs • Sexual orientation or

following gender reassignment

• Marital status• Colour

Applications for employment by disabled persons are given full and fair consideration for all vacancies, and are assessed in accordance with their particular skills and abilities. The Group does all that is practicable to meet its responsibilities towards the training and employment of disabled people, and to ensure that training, career development and promotion opportunities are available to all colleagues.


Governance report

The Group makes every effort to provide continuity of employment in the event that any colleague becomes disabled. Attempts are made in every circumstance to provide employment, whether this involves adapting the current job role and remaining in the same job, or moving to a more appropriate job role.

In common with many retailers, this year we published our Gender Pay Gap report for our Retail Group on 28 March 2018. Further information on our Gender Pay Gap report is contained in the Directors’ Remuneration Report on page 84. Our Gender Pay Gap report can be found at https://investors.petsathome.com/responsibility/policies-and-procedures/gender-pay-gap-report.

DirectorsThe names of the persons who, at any time during the financial year, were Directors of the Company are:

NameDate of appointment

Date of resignation

Tony DeNunzio 24 May 2017 (re-appointed)

n/a

Dennis Millard 24 May 2017 (re-appointed)

n/a

Tessa Green 24 May 2017 (re-appointed)

Resigned on 22 May 2018 but was a director during the financial period

Paul Moody 24 May 2017 (re-appointed)

n/a

Mike Iddon 17 October 2017 n/a

Sharon Flood 11 July 2017 n/a

Stanislas Laurent 11 July 2017 n/a

Ian Kellett 11 February 2014 27 April 2018

Nicolas Gheysens 2 December 2016 28 November 2018

Paul Coby 18 February 2014 11 July 2017

Amy Sterling 18 February 2014 11 July 2017

Ian Kellett resigned from his position as Group Chief Executive Officer on 28 November 2017 although his resignation did not take effect until after the end of the financial year on 27 April 2018. Ian’s employment with the Group will terminate on 31 May 2018. Ian was succeeded by Peter Pritchard.

On 28 November 2018, Nicolas Gheysens also resigned from the Board. Nicolas had been appointed to the Board as the nominated representative of the Company’s then Principal Shareholder, KKR My Best Friend Limited, an affiliate of Kohlberg Kravis Roberts & Co. L.P.. KKR My Best Friend Limited determined at that time not to exercise its rights under the relationship agreement entered into with the Company to replace Nicolas’ position on the Board.

During the financial period Amy Stirling and Paul Coby stepped down from the Board with effect from the close of the Annual General Meeting on 11 July 2017 in order to fulfil commitments in their full time roles. Amy was succeeded by Sharon Flood and Paul was replaced by Stanislas Laurent.

On 21 May 2018, after the end of the financial period, Tessa Green notified the Board of her intention to resign from the Board with effect from 12 July 2018. Tessa Green will be replaced by Professor Susan Dawson.

Appointment and removal of Directors The appointment and replacement of Directors of the Company is governed by the Articles.

Appointment of Directors: A Director may be appointed by the Company by an ordinary resolution of the Company’s shareholders or by the Board. The Board or any Committee authorised by the Board may from time to time appoint one or more Directors to hold any employment or executive office for such period and on such terms as they may determine and may also revoke or terminate any such appointment. A Director appointed by the Board holds office only until the next Annual General Meeting of the Company and is then eligible for re-appointment.

Annual re-election of Directors: All Directors stand for re-election on an annual basis in line with the recommendations of the Code.

Removal of Directors: A Director may be removed by the Company in certain circumstances set out in the Articles or by a special resolution of the Company’s shareholders.

Vacation of office: The office of a Director shall be vacated if (amongst other circumstances): (i) he is prohibited by law from being a Director; (ii) he resigns; (iii) his resignation is requested by all of the other Directors; (iv) he is or has been suffering from mental or physical ill health and the Board resolves that his office be vacated; (v) he is absent without the permission of the Board from meetings of the Board (whether or not an alternate Director appointed by him attends) for six consecutive months and the Board resolves that his office is vacated; (vi) he becomes bankrupt; (vii) he ceases to be a Director by virtue of the Companies Act; or (viii) he is removed from office pursuant to the Articles.

Powers of the Directors Subject to the Articles, the Companies Act, any directions given by the Company by special resolution of the Company’s shareholders and any relevant statues and regulations, the business of the Company will be managed by the Board who may exercise all the powers of the Company.

Directors’ interestsInformation relating to the Directors’ interests in, and options over, Ordinary Shares in the capital of the Company are shown in the Directors’ Remuneration Report on page 97. Since the end of the financial year and the date of this Directors’ Report, following the termination of Ian Kellett’s employment with the Company on 31 May 2018, options in respect of a total aggregate number of 476,461 ordinary shares will lapse. In addition, Mike Iddon received an award of 193,067 share options under the Pets at Home Group plc Restriction Stock Plan.

Directors’ Report continued


In line with the requirements of the Companies Act, each Director has notified the Company of any situation in which he or she has, or could have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company (a situational conflict). These were considered and approved by the Board in accordance with the Articles and each Director informed of the authorisation and any terms on which it was given. The Board has formal procedures to deal with Directors’ conflicts of interest as and when they arise. The Board reviews and, where considered appropriate, approves situational conflicts of interest that were reported to it by Directors and a register of those situational conflicts is maintained by the Company. The register is reviewed by the Board on an ongoing basis.

Compensation for loss of office The Company does not have any agreements with any Director or colleague that would provide compensation for loss of office or employment (whether through resignation, redundancy or otherwise) resulting from a takeover bid except that it should be noted that provisions of the Company’s share schemes may cause options and awards granted to Directors or colleagues under such schemes to vest on a takeover. For further information on the change of control provisions in the Company’s share schemes refer to the Directors’ Remuneration Report on page 92.

Directors’ insurance and indemnities The Company maintains directors’ and officers’ liability insurance cover for its Directors and officers (and those of other Group companies) as permitted under the Articles and the Companies Act. Such insurance policies were renewed during the period and remain in force as at the date of this Annual Report. Each Director and officer of the Company also has the benefit of a qualifying indemnity, as defined by section 236 of the Companies Act, and as permitted by the Articles. An indemnity deed is entered into by a Director at the time of his or her appointment to the Board. Prospectus liability insurance remains in force which provides cover for liabilities incurred by certain Directors in the performance of their duties in connection with the issue of the Company’s prospectus dated 28 February 2014 in relation to the Company’s Initial Public Offering and Listing.

No amount was paid under any of these indemnities or insurances during the financial year other than the applicable insurance premiums.

Share capital The issued share capital of the Company as at 29 March 2018 was 500,000,000 Ordinary Shares of 1 pence each. As at 21 May 2018, being the latest practicable date prior to the date of this Annual Report, the issued share capital of the Company remained 500,000,000 Ordinary Shares of 1 pence each. Further information regarding the Company’s issued share capital can be found on page 140 of the Group’s financial statements.

There have been no movements in the Company’s issued share capital in the 2018 financial period.

Details of colleague share schemes are provided in note 22 to the Group’s financial statements.

Voting rightsAll members who hold Ordinary Shares are entitled to attend and vote at the Annual General Meeting. On a show of hands at a general meeting every member present in person shall have one vote and on a poll, every member present in person or by proxy shall have one vote for every Ordinary Share held. No shareholder holds Ordinary Shares carrying special rights relating to the control of the Company and the Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on voting rights.

Powers for the Company to issue or buy back its shares Powers for the Company to issue shares: The Directors were granted authority at the previous Annual General Meeting on 11 July 2017, to allot shares in the Company under two separate resolutions: (i) up to one-third of the Company’s issued share capital; and (ii) up to two-thirds of the Company’s issued share capital in connection with a rights issue. These authorities apply until the end of the Annual General Meeting to be held on 12 July 2018 (or, if earlier, until the close of business on 11 October 2018). During the period, the Directors did not use their power to issue shares under the authorities, but did satisfy options and awards under the Company’s option and incentive schemes.

The Directors were also granted authority at the previous Annual General Meeting on 11 July 2017 to disapply pre-emption rights. This resolution (which is in accordance with the guidance issued by the Pre-Emption Group (the “PEG Principles”)) sought the authority to disapply pre-emption rights over 5% of the Company’s issued ordinary share capital. A further authority was also granted to disapply pre-emption rights in respect of an additional 5% for financing a transaction which the Directors determine to be an acquisition or other capital investment as allowed by the PEG Principles. During the period, the Directors did not use their power to issue shares under the authorities, but did satisfy options and awards under the Company’s option and incentive schemes.

The Company will, consistent with the 2017 Annual General Meeting, seek to renew these powers at the 2018 Annual General Meeting.

Powers for the Company to buy back its shares: The Company was authorised by its shareholders on 11 July 2017, at the 2017 Annual General Meeting, to purchase in the market up to 10% of its issued Ordinary Shares (excluding any treasury shares), subject to certain conditions laid out in the authorising resolution. This standard authority is renewable annually and the Directors will seek to renew this authority at the 2018 Annual General Meeting to be held on 12 July 2018. The Directors did not exercise their authority to buy back any shares during the financial period.


Governance report

Restrictions on transfer of Ordinary SharesThe Company’s shares are freely transferable, save as set out below.

The transferor of a share is deemed to remain the holder until the transferee’s name is entered in the register. The Board can decline to register any transfer of any share which is not a fully paid share. The Company does not currently have any partially paid shares. The Board may also decline to register a transfer of a certificated share unless the instrument of transfer: (A) is duly stamped or certified or otherwise shown to be exempt from stamp duty and is accompanied by the relevant share certificate; (B) is in respect of only one class of share; and (C) if to joint transferees, is in favour of not more than four such transferees. Registration of a transfer of an uncertificated share may be refused in the circumstances set out in the CREST Regulations (as defined in the Articles) and where, in the case of a transfer to joint holders, the number of joint holders to whom the uncertificated share is to be transferred exceeds four.

Certain restrictions are also imposed by laws and regulations (such as the Market Abuse Regulation) and pursuant to the Company’s share dealing code whereby certain Directors and Persons Discharging Managerial Responsibility and restricted colleagues require clearance to deal in the Company’s securities.

Significant shareholdingsInformation provided to the Company pursuant to the Disclosure Guidance and Transparency Rules is published on a Regulatory Information Service and on the Company’s website. As at 29 March 2018, the following information had been received, in accordance with DTR5.1.2R, from holders of notifiable interests in the Company’s issued share capital. These figures represent the number of shares and percentages held as at the date of notification to the Company. It should be noted that these holdings may have changed since notified to the Company however, notification of any change is not required until the next applicable threshold is crossed.

Name of shareholder

Number of Ordinary

Shares as at 29.03.18

Percentage of issued

share capital (%)

Nature of holding (direct/

indirect)

Schroders plc 78,010,918 15.60 Indirect

Old Mutual 75,162,963 15.03 Indirect

Canada Pension Plan Investment 50,095,670 10.02 Direct

Nordea 1 SICAV 24,816,413 4.96 Direct

Norges Bank 19,904,631 3.98 Direct

Portland Hill Asset Management Limited 15,059,316 3.01 Indirect

No changes have been disclosed in accordance with Disclosure Guidance and Transparency Rule 5.1.2R in the period between 29 March 2018 and 21 May 2018 (being not more than one

month prior to the date of the Notice of Annual General Meeting), except as set out in the table below:

Name of shareholder

Number of Ordinary

Shares as at 29.03.18

Percentage of issued

share capital (%)

Nature of holding (direct/

indirect)

Morgan Stanley 16,071,814 3.21 Direct/Indirect

Norges Bank 20,579,420 4.12 Direct

Schroders plc 64,234,925 12.85 Indirect

Significant related party transactions Save for the Relationship Agreement further described on page 70 of this Directors’ Report, there are no contracts of significance during the financial period between the Company or any Group company and: (1) a Director of the Company; (2) a close member of a Director’s family; or (3) a controlling shareholder of the Company.

Amendment of the ArticlesThe Articles may only be amended by a special resolution of the Company’s shareholders in a general meeting, in accordance with the Companies Act.

Profits and dividendThe consolidated profit for the year after taxation and excluding non-underlying items was £67,542,000 (FY17: £75,364,000). The results are discussed in greater detail in the financial review on pages 24 to 27.

A final dividend of 5 pence per ordinary share (FY17: 5 pence per ordinary share) will be recommended to the Company’s shareholders in respect of the 2018 financial year. The final dividend will be proposed by the Directors at the 2018 Annual General Meeting on 12 July 2018 in respect of the financial year ended 29 March 2018 to add to an interim dividend of 2.5 pence per ordinary share paid on 12 January 2018 (FY17: 2.5 pence per ordinary share).

The Directors’ proposed final dividend of 5 pence per ordinary share takes the total dividend payable in respect of the 2018 financial year to 7.5 pence per ordinary share. The ex-dividend date will be 14 June 2018 and, subject to shareholder approval being obtained at the 2018 Annual General Meeting, the final dividend of 5 pence per ordinary share will be paid to shareholders on the register at the close of business on 15 June 2018.

Political donationsThe Group made no political donations and incurred no political expenditure during the year (FY17: Nil). It remains the Company’s policy not to make political donations or to incur political expenditure, however the application of the relevant provisions of the Companies Act is potentially very broad in nature and, as with last year, the Board is seeking shareholder authority to ensure that the Group does not inadvertently breach these provisions as a result of the breadth of its business activities. The Board has no intention of using this authority.



SuppliersThe Group understands the importance of maintaining good relationships with suppliers and it is Group policy to agree appropriate terms and conditions for its transactions with suppliers (ranging from standard written terms to individually negotiated contracts) and for payment to be made in accordance with these terms, provided the supplier has complied with its obligations. Average trade creditors of the Group’s operations for FY18 were 48 days (FY17: 47 days).

Post balance sheet eventsOn 27 April 2018, Peter Pritchard was appointed Group Chief Executive Officer, succeeding Ian Kellett who notified the Board of his intention to resign in November 2017. Peter joined Pets at Home in 2011 as Commercial Director and moved to the CEO of Retail in 2015. Ian Kellett will remain employed with the Group until 31 May 2018, following which his employment will terminate.

On 22 May 2018, Tessa Green confirmed that she will step down from the Board with effect from the close of the Annual General Meeting on 12 July 2018. Tessa has been a Director of Pets at Home since 2014 and during that time has been Chair of the Corporate Social Responsibility Committee and the Pets Before Profit Committee. Tessa will be succeeded by Professor Susan Dawson, Dean of the Institute of Veterinary Science at the University of Liverpool and council member of the Royal College of Veterinary Surgeons. Professor Dawson will Chair the Pets Before Profit and Corporate Social Responsibility Committees.

Going concernOn the basis of current financial projections and facilities available, the Directors are satisfied that the Group is well placed to manage its business risks successfully and therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period of 12 months from the date of approval of the financial statements. Accordingly, the financial statements continue to be prepared on a going concern basis.

Viability statementThe Group has developed a detailed strategic and business planning (SBP) process, which comprises a strategic plan (Strategic Plan) containing financial projections and a business plan which forms a detailed near term one-year plan for the upcoming financial year. The SBP process produces standard outputs in respect of the key financial performance metrics of the Group which deliver consolidated financial plans at both Group level and at a number of levels within the Group. The Strategic Plan is reviewed each year by the Board as part of the strategy review process. Once approved by the Board, the Strategic Plan is cascaded across the Group and provides the basis for setting all detailed financial budgets and strategic actions that are subsequently used by the Board to monitor performance.

The SBP process covers a three-year period. The three-year plan provides a robust planning tool against which strategic decisions can be made. In making their viability assessment, the Board has taken into consideration that financing facilities are maintained for the duration of the Strategic Plan. The Directors have considered a combination of risks and uncertainties and the mitigating controls operated by the Group as detailed on pages 32 to 37 that may impact on the Group’s reputation and its ability to trade. These risks include issues on pet welfare, competitor activity and broader macro-economic risks and their impact on the Strategic Plan on an individual and combined level.

On this basis and in conjunction with other matters considered and reviewed by the Board during the year, the Board has reasonable expectations that the Group will be able to continue in operation and meet its liabilities as they fall due over the three financial years used for their assessment. In making this assessment, the Group has assumed that it is able to refinance the existing Senior Finance Bank Loans at a similar level to the existing facilities which expire in April 2020. Further to this, the Board have assumed that there is no material change in the legislative environment in relation to the sale of small animals and the practice of veterinary medicine. It is recognised that such future assessments are subject to a level of uncertainty that increases with time and, therefore future outcomes cannot be guaranteed or predicted with certainty.

Human rights and modern slavery statement Pets at Home is the UK’s leading specialist retailer of pets, pet related products and services. We run the UK’s largest small animal veterinary and grooming businesses through our vets and services brands. Our mission is to be the best pet shop in the world. We therefore take great care in operating our business and in selecting our business partners and suppliers. The products we sell are sourced from a broad range of suppliers – both national and international. We are the only UK pet retailer to have a dedicated sourcing office in the Far East. From our regional base in Hong Kong, which opened in 2012, we have a team of product technologists who support our buyers, oversee our suppliers and monitor production.

Our suppliers are required to comply with our Ethical Trading Policy and we undertake ethical audits which cover: hours of work, labour practices, working conditions, onsite accommodation, health and safety, environment, supply chain management and wages. We also require compliance with the Pets at Home Group’s Code of Business Ethics and Conduct.

In our modern slavery statement published in April 2016, we highlighted a number of areas where we wished to strengthen our processes to protect against the risk of modern slavery, following a Group wide risk assessment. These areas included: reviewing supplier due diligence and audit processes to ensure compliance with the Modern Slavery Act 2015 (Act), updating supplier trading terms and the Code of Business Ethics and Conduct in relation to the Act.


Governance report

During the last financial year, we reviewed our procurement processes in respect of modern slavery and have included appropriate questions in our tender documentation in relation to supplier compliance with the Act. In addition, we reviewed our audit processes and looked in detail at the questions asked during audits and the checks carried out. On review, our audits already include checks on working conditions, pay and other appropriate areas in sufficient detail to highlight any instances of modern slavery.

We have updated our supplier general terms and conditions to further drive compliance with the Act. We have included a warranty from suppliers requiring compliance with the Act, the right to audit in respect of the Act and also the right for Pets at Home to terminate in the event of supplier non-compliance with the Act.

In addition, we updated our Code of Business Ethics and Conduct to specifically cover the Act.

We consider that training is also key to raising awareness on modern slavery and will assist our colleagues and suppliers gain a better understanding on the issue of modern slavery and requirements set out in the Act. In November 2016, we delivered a workshop on this subject to all 45 suppliers attending our Asia supplier conference (being an area where we considered a greater potential risk of modern slavery was prevalent).

We have also delivered training to colleagues in our UK support office where relevant.

To ensure we continue to drive compliance with the Act, during this financial year we intend to review the previously undertaken risk assessment to ensure it remains up to date and will assess any new risk areas or actions. We will continue to train colleagues and suppliers as appropriate.

As set out in last year’s modern slavery statement, should any instances of non-compliance with the Act arise in relation to any of our suppliers then this will be reviewed and appropriate action taken.

The Pets at Home Group Plc Board of Directors approved this statement at a meeting of the Board on 11 July 2017.

Health and Safety We are committed to providing a safe and healthy environment for all of our colleagues, customers, third party contractors and pets. We actively encourage a positive Health and Safety culture throughout our stores, distribution centres, First Opinion practices, Specialist Referral Centres and support offices.

The Group recognises its responsibility for Health and Safety and we have robust control measures in place to minimise the risk of incidents. Each year we host a Health and Safety week in October with the aim of promoting good Health and Safety practice across the Group. The Group re-launches its Health and Safety Policy Statement during Health and Safety week and the policy is reviewed and signed off by the Group Chief Executive Officer.

The Group has incorporated a Health and Safety Committee which is chaired by the Chief People and Legal Officer and is attended by representatives of each business unit. The Health and Safety Committee meets four times a year and discusses various Health and Safety related issues as well as undertaking deep dive projects throughout the year. The Group’s distribution centres also host their own Health and Safety Committee meetings seven times per year.

There have been no Health and Safety Enforcement Notices served on the Group.

We continue to benchmark Group Accident Rates which also includes accidents which have taken place in our Joint Venture First Opinion veterinary practices and Specialist Referral Centres. We record all incidents (including non-work related injuries) and report all accidents in accordance with the Reporting of Injuries, Diseases and Dangerous Occurrence Regulations (RIDDOR). We also classify all incidents where we are aware the customer intends to go to hospital as RIDDOR reportable. This does result in some over reporting by the Group under RIDDOR.

During the financial year, total accidents across the Group increased proportionate to our store, practice and colleague growth. There was a decrease of 0.03 in the Colleague Accident Rate from 9.37 per 1,000 colleagues to 9.34 accidents per 1,000 colleagues, and an increase in Customer Accidents from 1.06 per 100,000 transactions to 1.22 per 100,000 transactions. The number of RIDDOR reportable accidents decreased from 0.33 to 0.26 in our stores, First Opinion practices and Specialist Referral Centres. In our distribution centres, there was a decrease of 0.08 accidents per 100,000 hours worked, and a 0.18 decrease in RIDDOR reportable accidents.

2015/16

Accident rates – stores/practices Distribution accident rates

7.48

9.37 9.34

1.1 1.06 1.22

Customer accidentrates per 100,000

transactions

Retail colleague accident rates

per 1,000 colleagues

0.430.39

0.31 0.320.28

0.1

RIDDOR accident rates per 100,000

hours worked

Colleague accidents per 100,000

hours worked

2016/17 2017/18

2015/16

Group RIDDOR rates

0.02 0.02 0.02

0.34 0.33

0.26

Colleague RIDDOR accident rate per 1,000 colleagues

Customer RIDDOR accident rates per

100,000 transactions

2016/17 2017/18

2015/16 2016/17 2017/18



For the third year running, our two distribution centres applied for the British Safety Council’s International Safety Award, both achieving Merits.

We achieved 100% completion of First Opinion practice annual audits within the Vet Group, and 100% compliance for Area Manager audits within the Retail Group.

We continue to promote Health and Safety through the Group to all of our colleagues and promote a “Stay Safe” culture.

Target FY17/18 Achievements Target FY18/19

Achieve a 5% reduction in colleague accident rates per 1,000 colleagues and a reduction in RIDDOR reportable accidents.

Achieved reduction in RIDDOR rates, colleague accident rate per 1,000 colleagues decreased by 0.34.

Achieve a 5% reduction in colleague accident rates per 1,000 colleagues and a reduction in RIDDOR reportable accidents.

Re-apply for the Safety awards and aim to achieve a merit or distinction for both distribution centres.

Awarded Merit for both distribution centres.

Re-apply for the Safety awards and aim to achieve a merits or distinctions for both distribution centres.

Review and improve Risk Assessment key areas throughout year in retail and our distribution centres and launch annual review during Health and Safety week.

Achieved. Risk Assessments are reviewed annually for launch during Health and Safety week to target key risk areas and raise Safety awareness.

Improve how we recognise and reduce risk and improve the working environment for all colleagues by providing safe equipment, storage and premises and relaunch our clean as you go policy in relation to storage and slips and trips risk.

Improve support and assistance to Area and Store Managers by introducing specific Health and Safety checks, undertaking store visits and targeting Health and Safety to simplify paperwork and processes so that they add value to our safety management systems.

Implemented safety checks and simplification of paperwork and processes launched into business during Health and Safety week.

Review and improve involvement in Safety at all levels, improving communications and colleague awareness and promote and encourage personal ownership of Safety with colleagues taking ownership of our policies.

Undertake review of Material Handling Equipment operations and training.

Reviewed and developed Material Handling Equipment management safety systems/policies and Risk Assessments.

Material Handling Equipment management training to be completed and daily Material Handling Equipment observations and coaching to be introduced.

Branches outside of the UKThe Company has no branches outside of the UK.

Change of control The only significant agreements to which the Company is a party that take effect, alter or terminate upon a change of control of the Company following a takeover bid, and the effect thereof, are as follows:

• On 14 April 2015, the Group entered into an Amendment and Restatement Agreement relating to a senior facilities agreement dated 18 February 2014 with a total facility amount of £260m (Senior Facilities Agreement). The Senior Facilities Agreement expires in 2020. The Senior Facilities Agreement contains customary prepayment, cancellation and default provisions including, if required by a lender, mandatory prepayment of all utilisations provided by that lender upon the sale of all or substantially all of the business and assets of the Group or a change of control.

• The Company’s subsidiary, Companion Care (Services) Ltd (CCSL), is a party to a facilities agreement dated 21 March 2018 for total commitments of £42m (Lloyds Facility). The Lloyds Facility provides funding for the Group’s Joint Venture First Opinion practices. Pursuant to the terms of the Lloyds Facility, CCSL provides a guarantee in respect of a certain fixed proportion of the outstanding facility loans provided to the Joint Venture practices which borrow under the facility. The Lloyds Facility contains customary prepayment, cancellation and default provisions including in the event of a change of control (direct or indirect) of CCSL.

• The Company’s subsidiary, Companion Care (Services) Ltd (CCSL), is a party to a facilities agreement dated 21 March 2018 for total commitments of £20,000,000 (HSBC Facility). The HSBC Facility provides funding for the Group’s Joint Venture First Opinion practices. Pursuant to the terms of the HSBC Facility, CCSL provides a guarantee in respect of a certain fixed proportion of the outstanding facility loans provided to the Joint Venture practices. The HSBC Facility contains customary prepayment, cancellation and default provisions including in the event of a change of control (direct or indirect) of CCSL. For these purposes “control” means the power to: (a) cast or control more than 90% of the votes that may be cast at a general meeting of CCSL; (b) appoint or remove all or a majority of the directors of CCSL; (c) give directions with respect to the operating and financial policies of CCSL with which the directors are obliged to comply; or (d) hold beneficially (directly or indirectly) at least 90% of the issued share capital of CCSL.


Governance report

Compliance with the terms of the Relationship Agreement (including any Independence Provisions)On 28 February 2014, and in connection with its Listing, the Company entered into the Relationship Agreement with KKR My Best Friend Limited (Principal Shareholder). The Relationship Agreement regulated the relationship between the Company and the Principal Shareholder. Pursuant to the terms of the Relationship Agreement, the Principal Shareholder had certain rights (amongst others) to: (A) representation on the Board and Nomination and Corporate Governance Committee; (B) appoint observers to the Remuneration, Audit and Risk and the Pets Before Profit and CSR Committees; and (C) certain anti-dilution rights. Such rights were subject to the Principal Shareholder maintaining a certain minimum level of shareholding. On 29 January 2018, the Principal Shareholder divested of its remaining stake in the Company and reduced its shareholding in the Company to nil. The Relationship Agreement has accordingly terminated.

Whilst in effect, the Relationship Agreement complied with the requirements of the Listing Rules, including Listing Rule 9.2.2AR(2)(a) and Listing Rule 6.1.4DR.

In accordance with the requirements of LR 9.8.4(14), the Board confirms that the Company complied with its obligations under the Relationship Agreement, including in respect of the independence provisions set out in such agreement at all times since it was entered into, including during the financial period under review, and, so far as the Company is aware, KKR My Best Friend Limited and its associates complied with the provisions of the Relationship Agreement, including the independence provisions set out in such agreement), at all times since it was entered into, including during the financial period under review.

Directors’ information to auditorsIn accordance with section 418 of the Companies Act, each Director who held office at the date of the approval of this Directors’ Report (whose names and functions are listed in the Board of Directors on pages 60–61) confirms that, so far as he or she is aware, there is no relevant audit information of which the Group’s auditor is unaware, and that each Director has taken all of the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Group’s auditor is aware of that information.

Independent auditorsDuring the 2016 financial year, a competitive tender process of audit services was completed in accordance with the requirements of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 (the Order). KPMG LLP was re-appointed as auditor of the Company at the 2017 Annual General Meeting.

The Company’s auditor, KPMG LLP, has indicated their willingness to continue their role as the Company’s auditor. Resolutions concerning the re-appointment of KPMG LLP as auditor of the Company and to authorise the Directors to determine their remuneration will be proposed at the 2018 Annual General Meeting as set out in the Notice of Annual General Meeting. For further information on the re-appointment of the auditors, refer to page 75 of the Audit and Risk Committee Report.

Approval of Annual Report The Strategic Report, Corporate Governance Statement and the Governance Report were approved by the Board on 21 May 2018.

This Directors’ Report was approved by the Board on 21 May 2018 and signed on its behalf by:

Louise StonierChief People and Legal Officer and Company Secretary 21 May 2018



Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report, and the Group and parent company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare the Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group’s financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and applicable law and they have elected to prepare the parent company financial statements on the same basis. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the parent company and of the profit or loss of the Group for that period. In preparing each of the Group and parent company financial statements for each financial year, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether they have been prepared in accordance with IFRSs as adopted by the EU; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s Group website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the Directors in respect of the annual financial reportWe confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

• the Strategic Report/Directors’ Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the necessary information for shareholders to assess the Group’s position and performance, business model and strategy.

Approved by the Board and signed on its behalf by:

Peter Pritchard Group Chief Executive Officer 21 May 2018


Governance report

Audit and Risk Committee Report

Sharon FloodChair of the Audit and Risk Committee

Who is on the Audit and Risk Committee?Member No. of meetings

Sharon Flood (Chair) (appointed 11 July 2017) 3/4

Amy Stirling (former Chair) (resigned 11 July 2017) 1/4

Dennis Millard 4/4

Paul Coby (resigned 11 July 2017) 1/4

Paul Moody 4/4

Stanislas Laurent (appointed 11 July 2017) 3/4

What we did in 2018

Reviewed key financial reporting matters and considered how these are presented in the Financial Statements.

Reviewed and challenged the Longer Term Viability Statement (LTVS) and going concern basis of preparation in advance of its approval by the Board. As part of this work, the carrying value of the goodwill balance has been reviewed.

Continued to broaden our focus on the Group’s control environment including the consideration of the adequacy of controls to support our high growth Vet Group.

Reviewed and challenged the Group’s preparation for compliance with forthcoming General Data Protection Regulation (GDPR) legislation.

Reviewed and challenged the effectiveness of the Group’s Internal Audit function including appointing an in-house internal auditor to work alongside our co-source model to meet the requirements of the Internal Audit Plan.

Reviewed the processes in relation to providing extended financial support to First Opinion practices and the recoverability of those loans. We have also considered whether the level of practice indebtedness infers additional control to the Group of a First Opinion vet practice and whether this challenges the existing accounting for a practice.

What we will do in 2019

Continue to carry out our responsibilities as set out in the terms of reference, including monitoring the integrity of the Group’s Financial Statements, challenging the judgemental areas contained within the Financial Statements and advising the Board on whether external reporting is fair, balanced and reasonable.

Continue to focus on the control environment of the Group, including pet welfare across our operations (Retail, Grooming, Vet including Specialist Division and our breeding partners) and the controls and processes relating to the management and release of key IT projects.

We will continue to monitor the effectiveness of the Group’s Internal Audit function and whistleblowing procedures. We will agree an Internal Audit strategy for 2019 and beyond, defining ways of working as well as specific projects.

We will review the approach and judgements made in applying forthcoming financial reporting standards, including Revenue Recognition and Leases.

We will continue to monitor the level of financial support provided to our First Opinion vet practices and keep under review any activity that might change existing accounting practices.

IntroductionThis is my first report as Chair of the Audit and Risk Committee, having joined the Board in July 2017. I am pleased to report that the Committee has had a very busy year assisting the Board in fulfilling its responsibilities to protect the interests of shareholders with regard to the integrity of the financial reporting, the adequacy and effectiveness of the risk management systems and internal controls, the effectiveness of the Internal Audit function and the relationship with the external auditors.

During the year the Committee met four times, with our agenda covering financial reporting, progress against the Internal Audit Plan and the external audit process. We have considered risk regularly throughout the year, reviewing updates to the Group risk register, tailoring our internal audit and risk review efforts towards the Group’s strategic priorities.

In addition to our regular agenda, this year we have considered accounting for forthcoming changes in accounting standards (notably Leasing and Revenue Recognition), proposed amendments to the Group’s Treasury policy in relation to foreign exchange and have also monitored the Group’s compliance levels with forthcoming General Data Protection Regulation (GDPR) legislation.

Committee membershipThe Audit and Risk Committee (the Committee) members have been selected to provide a wide range of financial and commercial experience necessary to fulfil the duties and responsibilities of the Committee. Each member of the Committee is an independent Non-Executive Director and has, through their other business activities, significant experience in financial matters. Further details of the Committee members and their experience can be found on pages 60 and 61.

The Chairman of the Company’s Board, Executive Management and senior managers within the business are invited to attend meetings as appropriate to ensure that the Committee maintains a current and well-informed view of events within the business, and to reinforce a strong risk management culture. The Group Company Secretary acts as secretary to the Committee.

The Committee meets according to the requirements of the Company’s financial calendar. The meetings of the Committee also provide the opportunity for the Independent Non-Executive Directors to meet without the Executive Directors present and to raise any issues of concern with the internal and external auditors.

Committee activitiesThe Committee’s role primarily covers the following areas:

• Financial reporting;• Ongoing viability;• Risk management systems;• Internal controls;• Internal audit; and• External audit.


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Meetings 2017/18The Committee met on four occasions during the financial year with each meeting having a distinct agenda to reflect the annual reporting cycle of the Group. The planner is regularly reviewed and developed to meet the changing needs of the Group.

A summary of the key matters considered at each meeting is as follows:

Meeting Financial reportingRisk management/ internal control Internal Audit External audit

May 2017

• Review of the Annual Report and Accounts for year ended 30 March 2017

• Review of Goodwill impairment review

• Review of recognition of supplier income

• Consideration of the Group’s longer term viability and going concern

• Review development of the Corporate Risk Register

• Review of risk register specific to Joint Venture companies

• Review of IT controls• Review of Information

Security

• Review and approval of Internal Audit Plan for the year

• Review reports on: – Overrider payments – Customer data security – Joint Venture company support

• Report on Annual Financial Statements and external audit

• Final evaluation of external auditor for year ended 30 March 2017

Sept 2017

• Planning for new standards on Revenue Recognition and Lease accounting

• Planning for Reporting on Payment practices

• Review of emerging tax reporting requirements


• Review of the Retail Loss Prevention plan

• Review reports on progress of Internal Audit Plan

• Review reports on: – Retail VAT processes – GDPR preparation – Processing colleagues’ expenses – Vet Group clinical governance processes – Financial System access controls

• Process to assess external auditor

• Review feedback from Executive Management on external auditor effectiveness from the prior year

Nov 2017

• Review of the Interim Financial Statements


• Review of Information Security


• Review reports on: – Transport office – GDPR preparation

• Report on Review of Interim Financial Statements

Jan 2018

• Planning for new standards on Revenue Recognition and Lease accounting

• Planning for Reporting on Payment practices


• Review of Treasury policy• GDPR preparation


• Review reports on: – Cash and Banking processes – Joint Venture Partner selection/recruitment and support

• Consideration of FY19 Internal Audit Plan

• Review of external audit strategy for the year ended 29 March 2018.

• Process to assess external auditor – issue of questionnaire

Audit and Risk Committee meetings


Governance report

Financial statement reporting issues The Committee considered a number of significant issues in the year, taking into account in all instances the views of the Company’s external auditor. The Committee consider the key risks within the Financial Statements to be the carrying value of goodwill and the carrying value of inventory.

The Committee considered the following in making their assessment of the reporting in the financial statements.

Issue Nature of the risk How the risk was addressed by the Committee

Carrying value of goodwill

The Group holds a significant goodwill balance. There are a number of factors that could impact on the future profitability of the business (e.g. threat of competition, changes in market behaviour, changes in the broader macro-economic environment) and there is a risk that the business will not meet the required financial performance to support the carrying value of the intangible asset.

The Committee reviewed and challenged management’s process for testing goodwill for potential impairment and ensuring appropriate sensitivity disclosure. This included challenging the key assumptions: principally cash flow forecasts, growth rates and discount rates and comparing the Group’s value in use to its market capitalisation.

The Committee also reviewed KPMG’s work and conclusions on this risk and the key assumptions they tested in reaching their conclusions.

The Committee is satisfied that there is no impairment to the goodwill balance and that there is appropriate disclosure in the financial statements.

See note 11 of the financial statements for details on the impairment testing.

Inventory valuation

The business carries a wide range of Stock Keeping Units (SKUs) and with a variety of expiry dates on most food lines. Changes in customer demand may mean that some lines cannot be sold, or will be sold below carrying value. Whilst provisions are made to reflect this, there is a risk that the provisions are inadequate. Management have established a detailed range review process to identify action to be taken against inventory lines and assess the required inventory provision.

The Committee reviewed management’s judgement in assessing the required level of inventory provisioning and concluded that the method of estimating the carrying value of inventory and that the level of provisioning is appropriate.

Carrying value of operating loans

The business provides additional financial support to First Opinion practices depending on the circumstance of each practice. This may include more recent openings to underpin their growth and support their working capital requirements and growth in clinical capacity.

This investment is a particular feature of the JV operating model in comparison to an “owned” network where overperformance from stronger units compensates any underperformance. In making this investment the Group does so after consideration of its total returns across all practices on a portfolio basis.

The return of this additional investment can be over an extended period due to each individual circumstance.

Management have established clear Joint Venture partner selection criteria and provide a range of commercial support and advice to enable practices to grow their revenues, maximise margin, reduce costs and generate cash.

Management have established a provision across all practices which reflects, on a portfolio basis, an assessment of extended investments being repaid over different lengths of time with different risks of return against these time periods and provides for potential shortfalls.

The Committee reviewed internal audit reports on partner selection and support provided to Joint Venture companies.

The Committee reviewed management’s judgement, as informed by independent analysis and review, in assessing the required level of provisioning applied to practices and the forecast recovery of operating loans provided.

The Committee is satisfied that the carrying values of operating loan balances are appropriate.

The Committee reviewed management’s assessment of whether the level of an individual practice’s indebtedness to the Group, particularly those with high levels of indebtedness, implies that the Group has the practical ability to control the Joint Venture, which would result in the requirement to consolidate. The Committee reviewed management’s judgement over the terms of the Joint Venture agreement and management’s practical ability to control the activities of the practice, including barriers to the Group’s ability to exercise this practical control and potential barriers to the Joint Venture Partner exercising their own control over the activities of the practice. The Committee is satisfied that on the balance of evidence from the Group’s experience as shareholder and lender to the practices, it does not currently have the ability to exercise control over those practices to which operating loans are advanced.

Audit and Risk Committee Report continued


Ongoing viabilityIn considering viability overall, the Committee reviewed the Group’s strategic plan with particular focus on the key assumptions in relation to revenue and our store and service expansion plans. Sensitivities to these key assumptions were also reviewed based on the impact of the Group’s key risks, individually and conflated, as set out on pages 34 to 37.

Following a review of the detailed considerations set out above by the Committee and Executive Management, the Committee is satisfied that it is appropriate for the Group to continue to adopt the going concern basis in preparing the Annual Report and Accounts of the Group and, further, that the Longer Term Viability Statement on page 67 is appropriate.

Risk management and internal controlsRisk management and the system of internal control are the responsibility of the Board. It ensures that there is a process in place to identify, assess and manage significant risks that may affect achievement of the Group’s objectives and that the level and profile of such risks is acceptable. The Committee provides oversight and challenge to the assessment of principal risks as set out on page 32. The Group’s key risks and uncertainties are set out on pages 34 to 37.

The Committee explores specific key risks of the Group in detail, inviting the management team to discuss the issues and mitigations and further proposed actions. During the year, the Committee reviewed the Group’s approach to the protection of confidential and personal data and considered risks specific to the Retail and Vet Group operations.

Internal AuditThe Internal Audit function has a direct line of report into the Committee and is an important part of the assurance processes within the business. The Committee reviews and approves the Internal Audit Plan for the year which is developed to address key risks across the business as well as reviewing core governance, financial and commercial processes.

The Head of Internal Audit and Risk attends each Committee meeting, updating on progress against the audit plan throughout the year, reporting on any key control weaknesses identified and progress against mitigating actions.

Specific work performed during the year in our key risk areas included:

Risk area Work undertaken

Brand and reputation • Review of Vet Group clinical governance policies and processes

• Review of selection process for Joint Venture partners

• Overrider payments

Regulatory and compliance • VAT compliance processes• Review of expenses policy

and processing

Liquidity and credit risk • Cash settlement processes for retail operation

Business systems and information security

• Review of Financial System access controls

• Review of GDPR readiness• Customer data security at

third parties

Treasury and financial risk • Joint Venture partner support and business development

All reports, related findings and recommended actions have been discussed by the Committee and are tracked to completion.

External auditKPMG presents their audit plan, risk assessment and audit findings to the Committee, identifying their consideration of the key audit risks for the year and the scope of their work. These reports are discussed throughout the audit cycle. As in the prior year, these risks were considered to be the carrying value of goodwill and the carrying value of inventory. In their reports presented to the Committee at both the half year and full year, the auditors considered these risks to be appropriately addressed and raised no significant areas of concern in these or any other areas of their review.

KPMG also attend the Committee meetings and meet separately, without management present, to discuss any issues in detail.

We are in compliance with the Order and performed a tender process which concluded in January 2015. KPMG, who have audited the Group since 2000, were reappointed at the AGM in September 2016. Nicola Quayle has been the audit partner since 2016.


Governance report

External auditors’ effectivenessThe Committee considered the effectiveness, independence and objectivity of the external auditors through the review of all reports provided, regular contact and dialogue both during Committee meetings and separately without management. Following the conclusion of the prior year audit, we conducted an audit effectiveness review through a questionnaire to Committee members, management and member of the Finance team. This questionnaire expanded on the process in the previous year, providing more focused insight into KPMG’s effectiveness. The results were discussed with KPMG and specific actions were agreed.

Auditor independenceMaintaining the objectivity and independence of the external auditors is essential. The Committee has taken appropriate steps to ensure that the Company’s external auditors are independent of the Company and obtained written confirmation from them that they comply with guidelines on independence issued by the relevant accountancy and auditing bodies.

Additional non-audit services provided by the auditors may impair their independence or give rise to a perception that their independence may be impaired. The Group has a policy in relation to the provision on non-audit services that is aligned with the EU Regulation and Statutory Audit Directive to provide further clarity over the type of work that is acceptable for the external auditors to carry out. The policy sets out the process required for approval and a cap to the total non-audit fees for permitted services (at 70% of the audit fee) – the policy was last reviewed in the year ended 30 March 2017.

Audit and non-audit fees paid to KPMG in the year were £271,000 and an analysis is presented in note 3 to the consolidated financial statements on page 127. Non-audit fees represent 15% of the audit fee.

Resolutions to re-appoint KPMG as auditors and to authorise the Directors to agree their remuneration will be put to shareholders at the Annual General Meeting that will take place on 12 July 2018.

Sharon FloodChairman Audit and Risk Committee 21 May 2018

Audit and Risk Committee Report continued


Nomination and Corporate Governance Committee Report

Who is on the Nomination and Corporate Governance Committee?There were two formal Committee meetings held in the financial year and members’ attendance was as shown in the table below. The Company Secretary acts as secretary to the Nomination and Corporate Governance Committee.

Member No. of meetings

Tony DeNunzio (Chair) 2/2

Dennis Millard 2/2

Paul Moody 2/2

Tessa Green 2/2

Sharon Flood 2/2

Stanislas Laurent 2/2

Amy Stirling (resigned 11 July 2017) 0/2


What we did in 2018

Recommended that Peter Pritchard be appointed as Group Chief Executive Officer following Ian Kellett’s resignation from the Board.

Recommended that Andrei Balta be appointed as CEO of the Vet Group.

Reviewed the talent and succession plans for the Executive Management Team and the Retail and Vet Group Executive Management Teams.

Assessed Board composition and how it may be enhanced.

Conducted and reviewed the Board evaluation and effectiveness survey.

Reviewed the independence of the Non-Executive Directors.

Reviewed and considered Directors’ conflicts of interest.

Reviewed the time commitment and length of service of the Non-Executive Directors.


Support Peter Pritchard in his transition to the role as Group Chief Executive Officer and in establishing a strong Executive Management Team around him.

Continue to assess Board composition and how it may be enhanced.

Implement further reviews and assessment of succession planning and development plans particularly in relation to the Executive Management Team and the Retail and Vet Group Executive Management Teams.

Review the Board’s diversity policy and recommend any changes in that policy to the Board.

IntroductionThe Nomination and Corporate Governance Committee is a key committee of the Board whose role is to keep the composition and structure of the Board and its Committees under review and has responsibility for nominating candidates for appointment as Directors to the Board having regards to its structure, size and composition (including the skills, knowledge, experience and diversity of its members).

We are also tasked with ensuring that succession plans are in place for the Directors, the Executive Management Team and the Retail and Vet Group Executive Management Teams, taking into consideration the current Board structure, the leadership requirements of the Group and the wider commercial and market environment within which the Group operates. The full terms of reference for the Nomination and Corporate Governance Committee can be found on the Company’s website.

Committee membershipThe UK Corporate Governance Code recommends that a majority of the members of a nomination committee should be Independent Non-Executive Directors. The Nomination and Corporate Governance Committee is chaired by myself, Tony DeNunzio, and its other members are Dennis Millard, Paul Moody, Tessa Green, Sharon Flood and Stanislas Laurent (each of whom is an Independent Non-Executive Director). The Nomination and Corporate Governance Committee meets not less than once a year.

The following Directors served on the Nomination and Corporate Governance Committee during the financial year:

Member Period from: To:

Tony DeNunzio (Chair) 18 February 2014 To date

Dennis Millard 18 February 2014 To date

Paul Moody 25 March 2014 To date

Tessa Green 18 February 2014 To date

Sharon Flood 25 May 2017 To date

Stanislas Laurent 25 May 2017 To date

Amy Stirling 18 February 2014 11 July 2017

Paul Coby 18 February 2014 11 July 2017

There were two formal Committee meetings held in the financial year and members’ attendance was as shown in the table above.

Tony DeNunzioChairman of the Nomination and Corporate Governance Committee


Governance report

How the Nomination and Corporate Governance Committee discharged its responsibilities in FY18Board appointments and resignations In November 2017, Ian Kellett notified me of his intention to step down as Chief Executive Officer. Ian’s resignation took effect on 27 April 2018. Ian joined Pets at Home in April 2006 as Chief Financial Officer and moved to the role of Group Chief Executive Officer in April 2016. Ian’s resignation required the Group to implement its succession plan and Peter Pritchard, CEO of the Retail Group, succeeded Ian as Group Chief Executive Officer with effect from 27 April 2018. Peter joined Pets at Home in 2011 as Commercial Director and moved to the role of CEO of Retail in 2015. During his time with the Group, Peter has overseen the establishment of our sourcing office in China, the launch of the VIP club, the development of our omnichannel strategy, and more recently, the repositioning of our Merchandise business. The Committee will do all it can to support Peter in his new role.

In November 2017, I also accepted Nicolas Gheysens resignation from the Board. Nicolas had been appointed to the Board as the nominated representative of the Company’s then principal shareholder, KKR My Best Friend Limited, an affiliate of Kohlberg Kravis Roberts & Co. L.P.. KKR My Best Friend Limited determined at that time not to replace Nicolas on the Board as it was otherwise entitled to do under the terms of the Relationship Agreement entered into with the Company.

As indicated in my report last year, during the financial period Amy Stirling and Paul Coby stepped down from the Board with effect from the close of the Annual General Meeting on 11 July 2017 in order to fulfil commitments in their full time roles. Amy was succeeded by Sharon Flood, Chair of ST Du Pont S.A, the Paris based luxury goods company and Audit Chair at Crest Nicholson plc and Network Rail. Paul was replaced by Stanislas Laurent who was appointed on 25 May 2017. Stanislas was formerly President and CEO of Photobox and COO of AOL Europe.

Sharon has been appointed as Chair of the Audit and Risk Committee and is a member of the Remuneration Committee and the Nomination and Governance Committee. Stanislas is a member of the Audit and Risk Committee, Nomination and Governance Committee, Corporate Social Responsibility Committee and Pets Before Profit Committee.

More recently Tessa Green confirmed that she will step down from the Board with effect from close of the Annual General Meeting on 12 July 2018. Tessa has been a Director of Pets at Home since 2014 and during that time has been Chair of the Corporate Social Responsibility Committee and the Pets Before Profit Committee. I would like to thank Tessa for her valuable contribution to the business and convey the Group’s best wishes to her going forward. Tessa will be succeeded by Professor Susan Dawson, Dean of the Institute of Veterinary Science at the University of Liverpool and council member

of the Royal College of Veterinary Surgeons. Professor Dawson will Chair the Pets Before Profit and Corporate Social Responsibility Committees and brings valuable veterinary services sector expertise to the Board.

Succession planning A principal risk to the business is the inability to attract, retain and incentivise talented individuals to deliver our strategy. The Committee is responsible for reviewing talent, capability and succession at the most senior levels of the business, however, in the last two financial years, the Committee has increased its focus on talent development, retention and succession below Board and Executive Management Team level. This work has involved considering skills and capability gaps along with succession planning immediately below the Executive Management Team. Considerable progress has been made in identifying gaps in the talent pool in addition to mitigating the risks associated with unforeseen events such as key individuals leaving the business.

As a result of this work, I was delighted to see that the Committee was able to recommend to the Board that Andrei Balta be promoted into the role of CEO of the Vet Group following Sally Hopson’s resignation on 23 March 2018. Andrei joined Pets at Home in 2011 as Director of Group Strategy and moved to the Vet Group in 2013, firstly as Commercial Director and subsequently as Chief Operating Officer. Prior to Pets at Home, Andrei was a management consultant at Bain & Company for seven years.

Despite the progress that has been made on succession planning, the Board recognises that more work is required in order to ensure that a clear development framework is in place for identified successors and this will continue to be a focus of the Committee for the next financial year.

Job levelling and banding To support the work which the Committee is undertaking on talent development, retention and succession below Board and Executive Management Team level, the Board engaged Willis Towers Watson to undertake a review of the Group’s banding structure. The work has involved reviewing the Group’s colleague banding structure across the organisation in order to determine changes which will create clearer career and development paths for all colleagues. The Board under the guidance of the Remuneration Committee will oversee the implementation of these changes over the current financial year.

Nomination and Corporate Governance Committee Report continued


Board evaluation and effectiveness As with the Board evaluation for FY17, this year, we carried out an internal Board evaluation that included the completion of a focused online questionnaire that re-considered the priority areas highlighted in the FY17 external evaluation in order to determine progress made. In light of changes to the Board since the Company’s previous evaluation process, Board composition and expertise and Board dynamics were also an area of focus. As part of the evaluation, I also held discussions with each Board member. The Board considered the output from the review in April 2018 and concluded that the performance of the Board, its Committees and individual Directors was effective. Any areas for improvement have been agreed by the Board and are detailed on pages 58 to 59 of the Governance Report.

DiversityWe take into account a variety of factors before recommending any new appointment to the Board, including relevant skills to perform the role, experience, knowledge, ethnicity and gender. The most important priority of the Committee, however, is ensuring that the best candidate is selected to join the Board. However, we will monitor the Group’s approach to people development to ensure that it continues to enable talented individuals, both male and female, to enjoy career progression with the Group. Further details on Board diversity can be found on pages 52 and 53 of the Governance Report.

Conflicts of interest and independence of the Non-Executive DirectorsThe Board has delegated authority to the Committee to consider, and where necessary authorise, any actual or potential conflicts of interest arising in respect of the Directors. We considered potential conflicts of interest as they arose during the course of the year.

We also support the Board in its annual consideration of the Conflicts of Interest Register, which is carried out prior to the publication of the Annual Report, and consider the independence of the Non-Executive Directors, in the context of the criteria set out in the Corporate Governance Code. The Board’s view on independence is contained on page 50 of the Governance Report.

For further information on Board composition, diversity and independence, see the Governance Report on pages 50 to 51.

I will be available at the Annual General Meeting to answer any questions on the work of the Nomination and Corporate Governance Committee.

Tony DeNunzioChairman Nomination and Corporate Governance Committee 21 May 2018


Governance report

Corporate Social Responsibility and Pets Before Profit Committees Report

IntroductionRecognising the Group encompasses a broad range of activities which are all focused around pets, the Board maintains a regular and detailed review of pet welfare in addition to Corporate Social Responsibility (CSR) more widely. It achieves this by having both a CSR Committee and a Pets Before Profit Committee which, together, help manage the Group’s most important ethical, social and environmental impacts.

The Committees regularly review the Group’s policies and procedures in relation to pet welfare in its retail business and supply chain, and the development of its clinical governance framework in the veterinary services business. The Committees also review all other elements of the Group’s CSR strategy, including energy and climate change, waste, natural resources and its policies in relation to people.

A group of senior managers from across the business have specific responsibility to ensure the delivery of our CSR commitments and to further improve standards of pet welfare.

Committee membershipThe CSR Committee, which meets twice a year, is chaired by Tessa Green and its other members are Tony DeNunzio, Dennis Millard and Stanislas Laurent. The Pets Before Profit Committee, which meets three times a year, is also chaired by Tessa Green with Tony DeNunzio, Dennis Millard and Stanislas Laurent as its members, however, acknowledging the importance of pets to the Group, all Board members are required to attend Pets Before Profit Committee meetings, along with Board observers.

Focus and approachAs our veterinary services business has continued to grow rapidly, it is no longer appropriate to think about our wider responsibilities in retail-centric terms such as ‘sourcing’ and ‘supply chains’. So we have reviewed and updated how we address corporate social responsibility based around the concept of ‘doing the right thing’. Doing the right thing for pets, for people and for the planet will form the basis of how we approach our responsibilities holistically and how we report our impacts and progress. This change has resonated well with colleagues across the business as it also reflects many of our values.

Tessa GreenChair of the Corporate Social Responsibility and Pets Before Profit Committees

Who is on the Corporate Social Responsibility and Pets Before Profit Committees?Member No. of meetings

Tessa Green (Chair) 5/5

Dennis Millard 5/5


Stanislas Laurent (appointed 25 May 2017) 4/5

Tony DeNunzio 5/5

What we did in 2018 – Corporate Social Responsibility

Reviewed progress of energy saving initiatives ahead of completing store rollout of LED lighting/BEMS technology.

Reviewed the Group’s technical capabilities and quality assurance process in relation to pet food.

Reviewed and challenged the Group’s plans to provide veterinary outreach to people living with pets in insecure accommodation.

Continued to keep the reporting of CSR activity and progress under review in both the Annual Report and online.

What we did in 2018 – Pets Before Profit

Reviewed in-store daily pet care routines, including provision of fresh fruit and vegetables and bottled spring water.

Reviewed the spread of RHD2 virus and the Company’s response to the care of its rabbits and its breeders.

Reviewed the outcome of pet audits in stores.

Reviewed the Vet Group’s plans in relation to clinical governance in both First Opinion and specialist veterinary practices.

Reviewed impact assessments in relation to DEFRA’s proposed legislation and guidance for animal activities licensing.


Continue to ensure delivery of the best possible pet welfare standards across the Group.

Continue to review the Group’s sustainability strategies, with a particular focus on energy and climate change, waste reduction and consumption of natural resources.

Monitor the Group’s progress in relation to mental health.

Review the Group’s sourcing policies.


HighlightsI am particularly pleased with the progress that has been made in a number of key areas over the past year:

• We continue to improve the welfare of our pets. This year we have made significant improvements to our aquatics sections and to the supply of fish. We have also improved the fruit and vegetables and the fresh water we provide to our small mammals (see page 40).

• Over Easter we again suspended the sale and adoption of rabbits to reduce the pressure for impulse purchasing and offered rabbit workshops instead. These are fun and engaging and play an important educational role, emphasising the responsibilities that come with pet ownership (see page 42).

• Our people teams have developed wellbeing programmes that are relevant to both our retail colleagues and our veterinary professionals. In the current year there will be a particular emphasis on mental health and wellbeing across the Group (see page 44).

• We welcomed the Parliamentary Under Secretary of State for Rural Affairs and Biosecurity to one of our stores to share the progress we have made to educate customers about their responsibilities in relation to invasive non-native species (see page 46).

• Colleagues in our Vet Group have made excellent progress in the development of programmes that help our veterinary colleagues develop their clinical skills and practice to a consistent standard across all our practices (see page 45).

• Our store colleagues helped to raise £4.3m to support the rehoming of pets. In the month of December alone, they raised a staggering £1.4m in conjunction with the charity Support Adoption For Pets, to help with this vital work. This facilitated a transformational grant of £100,000 from Support Adoption For Pets, its largest ever single award, to Hope Rescue in South Wales (see page 43).

Tessa GreenChair Corporate Social Responsibility and Pets Before Profit Committees 21 May 2018

Some of the charities receiving grants from Support Adoption For Pets this yearRSPCA Northamptonshire – £15,000 This donation funded the purchase of a new animal ambulance. It is one of 17 vehicles Support Adoption For Pets has funded during the year, from small animal ambulances like this one, to a 3.5 tonne horse transporter.

Horse Sense Wirral – £10,000 To help with vet bills and to fund the purchase of a paddock sweeper and an industrial washing machine. Twelve rescues have received grants to purchase equipment from washing machines right through to tractors.

Animal Care Lancaster – £45,000 Having received a grant, this charity was able to upgrade their dog isolation block and outside pens. Over the year eight rescues have been able to improve their dog accommodation.

Maesteg Animal Welfare Society, Bridgend – £6,450 This grant helped with the building of a cat pen and contributed towards the cost of a neutering programme for unowned cats.

Cats Protection – £60,000 Having received this grant Cats Protection was able to extend their work on a national cat census to an additional four regions. This funding is specifically for neutering and vet-related costs and making a positive contribution to cat welfare. Stray cats that are ‘friendly’ will be neutered and vet checked in readiness for rehoming. Those which are unlikely to make good pets will be neutered, vaccinated, treated for fleas and worms, and returned. Over the year 47 rescues were supported with vet bills, trap neuter release schemes and public neutering programmes.


Governance report

Directors’ Remuneration Report

IntroductionOn behalf of the Remuneration Committee (Committee), I am pleased to present our Directors’ Remuneration Report for FY18. The Annual Report on Remuneration will be subject to an advisory vote at our 2018 Annual General Meeting (AGM).

Policy review and ongoing shareholder consultationAt the AGM in July last year we were delighted that our shareholders approved both our new Remuneration Policy (Policy) and our new Long Term Incentive Plan (LTIP), with 85.16% and 84.42% of votes in favour, respectively. We recognise the importance of the consultation we had with shareholders and the valuable feedback we received from them, as we shaped our proposals. As a consequence, and especially given there has been some change to our shareholder base since last year, we have proactively reached out to all new shareholders to explain the rationale behind our approach to executive remuneration. We are committed to ongoing dialogue with all our shareholders and we will always listen actively to their thoughts and share any feedback and subsequent Committee response where appropriate.

Remuneration in respect of FY18Results for FY18At the end of FY17, as detailed on page 14 in the Chairman’s Statement, we repositioned the Merchandise business by investing in value for the customer, so giving ourselves a stronger platform from which to deliver sustainable, profitable growth in future years. We are seeing the benefits of this repositioning coming through in the exceptionally strong performance in our retail division for FY18, with more customers coming back to shop with us and the development of our subscription service bringing in some excellent results. Our veterinary business is already a profitable business, delivering strong returns. We have chosen to slow our practice rollout, but this is to ensure that we open practices in the right locations with the right vet partners and, in parallel, we can focus on accelerating growth in our existing practices.

FY18 saw:• The £13m price investment in Merchandise remaining on

track and delivering positive results faster than expected, with FY18 like-for-like growth of 5.0% and market share gains in food and accessories.

• Omnichannel revenues of £51.4m grew at 75.1%, ahead of the online pet market and key competitors.

• Total incomes from the First Opinion Joint Venture vet practices up 16.1% to £53.1m and double digit revenue growth in Specialist Referral Centres.

• Net openings completed: 13 superstores, 25 vet practices and 27 grooming salons. Closed seven Barkers stores.

• Total dividend payable of 7.5 pence per share, maintained at the prior year level.

Paul MoodyChairman of the Remuneration Committee

Who is on the Remuneration Committee?Member No. of meetings

Paul Moody (Chairman) 2/3

Dennis Millard 3/3

Amy Stirling 1/1

Tessa Green 3/3

Sharon Flood 2/2

What we did in 2018

Approved share awards under the new LTIP to all colleagues;

Agreed the annual bonus targets for the Group Executive Management Team for FY18 and measured performance against them;

Reviewed the gender pay gap analysis results and agreed the actions for starting to address the issues identified;

Considered and recommended the remuneration package for the new Group Chief Executive Officer;

Discussed and reviewed attainment against the performance conditions for the Group’s LTIPs due to vest during the period;

Reviewed the wider remuneration structure for all colleagues; and

Reviewed the terms of reference of the Committee.


Approve share awards under the LTIP to all eligible colleagues;

Agree the annual bonus targets for the Executive Management Team for FY19 and measure performance against them;

Continue to engage with shareholders on our Remuneration Policy;

Implement the revised remuneration structure for the wider colleague population; and

Continue to monitor changes in corporate governance and respond accordingly.


Annual bonus outcomesTargets for the annual bonus for FY18 were set by the Committee to reflect the repositioning of the business and were based on EBITDA (75%) and free cash flow (25%). In determining the payouts under the annual bonus plan for the Executive Directors, the Committee has been mindful not only of the formulaic outcome against the targets set, but also of the overall performance of the business, how management have delivered against the change in strategy and our shareholders’, experience over the period.

• The EBITDA outcome at £123.3m resulted in that portion of the annual bonus paying out at 49.8% of base salary versus a maximum of 75%. This shortfall against the maximum reflected the performance of the veterinary business in FY18.

• The business delivered well against the stretching free cash flow targets, with a cash conversion rate of 48%. The free cash flow portion of the bonus therefore paid out at maximum (equal to 25% of base salary).

• In total, the overall bonus payout was 74.8% of base salary, versus a maximum opportunity of 100% of base salary. Full details can be found on page 96 of our Annual Report on Remuneration.

• Whilst under the terms of the approved Policy, notwithstanding his resignation, Ian remained eligible for an annual bonus for the performance year. However, in view of the shareholder experience throughout the performance period and to ensure consistency of treatment with other colleagues who resigned during the financial year but received no bonus, Ian Kellett agreed that it was appropriate to waive his bonus.

Share incentive plansRestricted Stock Plan (RSP)• The first awards under our newly approved RSP were made

in July 2017, the first tranche of which will not vest until 2020.• We intend to make a further grant of awards after our

preliminary results in June 2018, with the same vesting schedule and underpin as last year.

• Full details of the awards made in 2017 are contained in the Remuneration Report on page 97.

Co investment Plan• The second tranche of Matching Shares under the 2014

Co-Investment plan were released in March 2018• Further details can be found on page 97 of the Annual Report

on Remuneration.

Remuneration in respect of FY19FY19 salary reviewThe Committee reviewed the salary level of Mike Iddon and concluded that he would receive an increase of 2% in line with increases made to other colleagues. This increase took effect from 30 March 2018. Ian Kellett received no increase to his base salary as he had resigned.

FY19 bonus targetsThe Committee has been reviewing the performance measures for the annual bonus plan and agreed to replace the profit measure, previously EBITDA, with PBT. PBT has become a key externally reported business measure for us, and its use as a bonus measure will enable management’s control and use of capital to be reflected in any bonus payment and will be very transparent for our shareholders. PBT will still make up 75% of the bonus (as EBITDA did), recognising the importance of profit delivery, with free cash flow remaining as the other performance measure at 25%. The Committee has adopted a rigorous approach to setting bonus targets for FY19, calibrating proposals against a range of data points, and feels confident that these targets are appropriately stretching. Further details of this approach can be found on page 99 of our Annual Report on Remuneration. Full details of the targets for FY19 and outcomes against them will be reported in the FY19 Annual Report on Remuneration.

Peter Pritchard’s remunerationAs previously disclosed, when Peter took up the position of CEO on 27 April 2018, he received a base salary of £494,200. His maximum bonus opportunity for FY19 will be 100% of base salary and he will be eligible to receive an award under the RSP of 75% of base salary. Under the Policy Peter is required to build up his shareholding in the Group to 200% of his base salary. However, as at 29 March 2018, he already had a shareholding of 1039% of his then base salary at a share price of 169p, so comfortably exceeding the requirement.


Governance report

Directors’ Remuneration Report continued

Our colleaguesDuring this year, we have revitalised our approach to listening and engaging with our colleagues. We have set up new direct listening sessions with our Group Executive Management Team and have changed our colleague engagement survey so we can improve the feedback from our colleagues on what they feel about our business. We were delighted to hear that we had been ranked 5th in the UK’s Best Workplaces, large company category, and the only retailer to make it into the top 10. This is a great tribute to the hard work and dedication of all our colleagues.

Widespread share ownership is a key part of our engagement and culture and the majority of our colleagues hold shares either through our Sharesave plan, our previous share plans or the new RSP. All eligible colleagues received an award under the new RSP in July last year and they will do so again at the time of the next award. We also had a further offering of the Company’s Sharesave plan in September 2017 and our first Sharesave award, made in 2014, vested in December 2017. In June, this year, colleagues’ (excluding the Executive Directors) second discretionary awards under the CSOP/PSP Plans will also vest.

We published our Gender Pay Gap report on 28 March this year. In common with many retailers, women make up the majority of our colleagues. Across our stores we were encouraged to see that our average gender pay gap is less than 0.5%, however, we do have an overall gender pay gap of 17.9% for which there are three main reasons:

• a higher proportion of women in our lower paid roles;• the large number of women we have in part time roles; and• fewer women in senior leadership positions.

One of our core values is that we “get better everyday”; we are committed to making the changes necessary to ensure that we develop the skills and experience in our already very talented female colleagues so that more women have the potential to occupy senior leadership positions. Our Gender Pay Gap report can be found at https://investors.petsathome.com/responsibility/policies-and-procedures/gender-pay-gap-report, where we detail the initiatives and plans that we have committed to.

Board changesFollowing Ian Kellett’s resignation as CEO, the Board was delighted to be able to appoint Peter Pritchard to succeed Ian. The ability to appoint an internal successor to ensure a smooth transition recognises the strength of our talent development and succession planning.

Lastly I would like to thank Amy Stirling for her service to the Committee and as a Non-Executive Director. Sharon Flood joined the Committee on her appointment to the Board at the AGM last year.

As ever, we would welcome any feedback or comments on this report. The Committee remains committed to paying for performance and ensuring that the interests of the Executive Directors are aligned with those of our shareholders.

Yours faithfully

Paul MoodyChairman of the Remuneration Committee 21 May 2018


Remuneration principlesThe objectives of our Directors’ Remuneration Policy are:

Strategy • To align with our programme of Group wide simplification.

• To have incentives that are appropriate for our business for the next three years as we focus on delivering long term, sustainable returns to investors.

Culture • To adopt a ‘bottom-up’ approach to remuneration – a policy that works for our colleagues and can be applied to our executives.

• To support our ongoing desire to embed share ownership across the organisation.

• To assist with succession planning.

Retention • To simplify and therefore enhance perceived value of awards and thereby reduce flight risk.

Shareholders • To deliver better value to shareholders for their reward spend by:

– Improving perceived value;

– Creating stronger alignment with shareholders; and

– Increasing focus on long term sustainable value creation.

How we ensure pay for performance linkage

Annual bonus

• Pay-out linked to achievement of robust and challenging annual performance targets.

• Full disclosure of bonus – commitment to disclosing all target ranges on a retrospective basis at the end of the financial year in question.

Underpin

• The absolute TSR underpin guarantees baseline performances below which awards will not vest.

• Serves as a security mechanism to prevent pay-outs for poor performance.

Share price

• Share price inherently links pay to performance.• Build up of shareholding and long term vesting

horizon incentivises senior colleagues to increase focus on long term, sustainable performance.

1. Directors’ Remuneration Policy

a) Policy reportThe following section on pages 86 to 88 sets out our Directors’ Policy for all of the Executive Directors and the Non-Executive Directors (as well as any individuals who may become Directors whilst this Policy is in effect), which was approved by shareholders at the Company’s AGM in July 2017. The Policy is intended to remain in force for up to three years.

The Policy explains the purpose and principles underlying the structure of remuneration packages and how the Policy links remuneration to the achievement of sustained high performance and long term value creation.

Overall remuneration is structured and set at levels to enable us to recruit and retain high calibre colleagues necessary for business success, whilst ensuring that our reward structure and performance measures are aligned to the strategy and are simple to communicate to participants and shareholders.

A significant portion of the package is performance related via the annual bonus plan and the LTIP, which requires achievement of a TSR underpin before it vests. Remuneration has been set taking into account practice within the FTSE 250 and practice at other retail companies.

Our Directors’ Remuneration Policy


Governance report

Our Directors’ Remuneration Policy continued

Base salary

Purpose and link to strategyThe Company provides competitive salaries suitable to attract and retain individuals of the right calibre to develop and execute the business strategy.

Operation• Base salaries are paid in cash and are pensionable.

• Base salaries are reviewed annually, typically at the March Remuneration Committee meeting. Any changes are usually with effect from the start of the next financial year. The Committee takes into consideration a number of factors when setting salaries, including (but not limited to):

– Size and scope of the individual’s responsibilities;

– The individual’s skills, experience and performance;

– Typical salary levels for comparable roles within appropriate pay comparators, including practice for retail companies and the broader FTSE 250; and

– Pay and conditions elsewhere in the Group.

Maximum opportunity• Whilst there is no maximum salary level,

any increases will normally be broadly in line with the wider colleague population.

• Higher increases may be made under certain circumstances, at the Committee’s discretion. For example, this may include:

– Increase in the scope and/or responsibility of the individual’s role; and

– Development of the individual within the role.

Annual base salaries for the Executive Directors are set out on page 95 of this report.

Benefits

Purpose and link to strategyThe Company provides colleagues with market competitive benefits suitable to attract and retain individuals of the right calibre to develop and execute the business strategy.

Operation• The Company provides a range of benefits,

which may include:

– a company car (or cash equivalent)

– life assurance

– permanent health insurance

– private medical insurance

• These benefits are not pensionable.

Other benefits may be offered from time to time, if considered appropriate by the Committee and consistent with the Company’s overriding purpose for offering such benefits.

The Company may also meet certain mobility costs, such as relocation support, expatriate allowances, temporary living and transportation expenses, in line with the prevailing mobility policy and practice for other senior executives.

Executive Directors are eligible to participate in any tax-approved all-colleague share plans operated by the Company on the same basis as other eligible colleagues such as the SAYE scheme (set out below on page 88).

Maximum opportunity• The cost to the Company of providing other benefits

may vary depending on, for example, market practice and the cost of insuring certain benefits.

The Committee keeps the level of benefit provision under regular review.

Details of the current benefit provision for the Executive Directors is set out on pages 99 and 100 of this report.

Pensions

Purpose and link to strategyTo provide colleagues with an allowance for retirement planning.

OperationPension contributions are made to either the Group Pension Plan, or to personal pension schemes or cash allowances in lieu of contributions are paid.

Maximum opportunityThe contribution level for an individual Executive Director is capped at 15% of base salary per annum for employer contributions. Details of current pension provision for the Executive Directors are set out on page 88 of this report.

Pay element – Fixed pay


Annual bonus

Purpose and link to strategyTo incentivise the delivery of our business plan on an annual basis.

To reward performance against key performance indicators which are critical to the delivery of our business strategy.

Operation• Delivery will normally be in cash and is not

pensionable.

• Performance measures are set annually and pay-out levels are determined by the Committee after the year-end, based on performance against those targets during the relevant financial year.

• Awards are subject to malus and clawback provisions where there has been a material misstatement of audited results; serious financial irregularity; any circumstances justifying summary dismissal of a participant from his office or employment with any Group Company including, but not limited to, dishonesty, fraud, misrepresentation or breach of trust; any material breach of a participant’s terms and conditions of employment; and/or any material violation of Company policy, rules or regulations.

Maximum opportunityThe maximum bonus opportunity is 100% of base salary.

Performance measures• Each year, the Committee determines

the measures and weightings within the following parameters:

– At least 75% of the annual bonus will be based on financial performance measures; and

– No more than 25% of the annual bonus will be based on performance against non-financial measures, including for example, individual and strategic objectives.

• The Committee ensures that targets are appropriately stretching in the context of the business plan and that there is an appropriate balance between incentivising Executive Directors to meet financial targets for the year and to deliver specific non-financial goals. This balance allows the Committee to effectively reward performance against the key elements of our strategy.

• The Company may, in the context of the underlying business strategy, amend the performance measures or targets.

The performance metrics for the annual bonus for the Executive Directors are set out on page 99 of this report.

Long Term Incentive Plan1

Purpose and link to strategy• To promote

continued alignment between Executive Directors and shareholders, increasing focus on long term sustainable value creation

• To support our principle of embedding share ownership across the organisation

• To assist with succession planning

Operation• Awards will be made under the RSP annually.

• Share awards are normally made in the form of nil cost options but may be awarded in other forms if appropriate (such as conditional share awards). The plan rules specify that awards may also be satisfied in cash although this is unlikely to apply to Executive Directors.

• No award will vest under the RSP unless the TSR underpin has been achieved.

• Subject to the achievement of the TSR underpin at year three and continued employment:

– 50% of the award will vest after three years.

– 25% of the award will vest in each of years four and five.

• Additional shares (or cash) may be awarded in lieu of dividends on any shares which vest, which would have been paid during the vesting period.

• Malus and clawback provisions apply to these awards in circumstances as set out on page 92 of this report.

• Change of control provisions apply as set out on page 92 of this report.

• Leaver provisions apply as set out on page 92 of this report.

Maximum opportunityThe maximum value of restricted shares that may be awarded in respect of any financial year is 75% of salary.

Performance measures• There are no performance targets attached to

the awards.

• A baseline performance underpin applies, which requires absolute TSR performance to be positive over the first three years of the vesting period. If the underpin is not achieved, the awards lapse in full.

• The plan rules stipulate that the Committee may amend the performance measures or underpin in exceptional circumstances where it considers that they are no longer appropriate. If this discretion was used, we would consult with shareholders and the rationale would be clearly explained in the remuneration report.

Pay element – Variable pay


Governance report


SAYE1

Purpose and link to strategy• An all-colleague

plan, which encourages long term shareholding and aligns the interests of UK colleagues with shareholders

• Executive Directors are eligible to participate

Operation• SAYE is a HMRC-approved scheme where

eligible colleagues are granted savings-related share options to subscribe for Ordinary Shares in the Company.

• Options are granted to be exercisable in conjunction with either a three-year or five-year savings contract with a monthly savings limit set according to HMRC limits (currently £500 per month).

• Options are normally granted at a discount to market price at the time of invitation, as per HMRC regulations (currently 20%).

Maximum opportunityThe market value of the shares under option at the date of maturity of the Sharesave savings contract, less the grant price of the option at the contract start date.

Performance measuresThere are no performance measures attached to awards under the SAYE.

Chairman and Non-Executive Directors’ Remuneration Policy

Purpose and link to strategyTo attract and retain high calibre individuals by offering market competitive fee arrangements.

Operation• Non-Executive Directors receive a basic fee in

respect of their Board duties.

• Further fees are paid to Non-Executive Directors in respect of Deputy Chairman of the Board and/or chairmanship of Board Committees.

• The Non-Executive Chairman receives an all-inclusive fee for the role.

• The remuneration of the Non-Executive Chairman is set by the Remuneration Committee, whilst the Board as a whole is responsible for determining Non-Executive Director fees. These fees are the sole element of Non-Executive remuneration and they are not eligible for incentive awards, pensions or other benefits.

Fees are typically reviewed annually.

Expenses incurred in the performance of Non-Executive duties for the Company may be reimbursed or paid for directly by the Company, as appropriate, including any tax due on the benefits.

Maximum opportunityCurrent fee levels can be found on page 100.

Fees are set at a level which is considered appropriate to attract and retain the calibre of individual required by the Company.

The Company’s Articles of Association provide that the total aggregate remuneration paid to the Non-Executive Chairman and the NEDs will be within the limits set by shareholders.

Performance measures N/A.

1 The Committee may in the event of any variation of the Company’s share capital demerger, delisting, or other event which may affect the value of awards, adjust or amend the terms of awards in accordance with the rules of the relevant share plan. In the case of the SAYE, any changes may be subject to HMRC approval if required.


Legacy mattersThe Committee will honour remuneration related commitments to former, current and future Executive and Non-Executive Directors (including the exercise of any discretions available to the Committee in relation to such commitments) where the terms were agreed prior to them becoming a Director (provided that, in the opinion of the Committee, the payment was not in consideration for the individual becoming an Executive Director or Non-Executive Director of the Company) and/or where the terms were agreed and commitments made in accordance with the previous remuneration policy approved by the Company’s shareholders in September 2014.

For these purposes, payments include the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are agreed at the time the award is granted. This includes allowing the vesting of outstanding awards under the Co-Investment Plan, CSOP and PSP, the terms of which are detailed in the previous policy that was approved by shareholders at the Company’s AGM in September 2014.

Remuneration arrangements throughout the CompanyThe Policy for our Executive Directors is designed in line with the remuneration philosophy and principles that underpin remuneration for the wider Company. The Company believes in having a consistent approach to remuneration rather than designing alternative plans for our Executive Directors.

All our reward arrangements are built around the common objectives and principles outlined below:

• Aligned incentives – A meaningful proportion of remuneration is based on performance. Individuals are incentivised towards consistent financial and non-financial business goals and objectives, in addition to appropriate individual goals.

• Colleagues as shareholders – Our culture is built on a cohesive team approach and widespread shareholding amongst colleagues which we believe enhances our long term sustainable success by promoting stewardship and alignment amongst a wide colleague participation group

• Simplification – our Policy aligns with a much wider programme of simplification across the Group as a whole, from how we operate our supply chain and stores, right through to our Support Offices.


Governance report


(b) Recruitment policyThe following table sets out the various components which would be considered for inclusion in the remuneration package for the appointment of an Executive Director and the approach to be adopted by the Committee in respect of each component and which remain unchanged from the previous Policy.

Element Policy and operation

Overall • The Committee’s approach when considering the overall remuneration arrangements in the recruitment of a member of the Board from an external party is to take account of the Executive Director’s remuneration package in their prior role, the market positioning of the remuneration package, and not to pay more than necessary to facilitate the recruitment of the individual.

• Where an Executive Director is appointed from within the business, in addition to considering the matters detailed for external candidates, the normal policy of the Company is that any legacy arrangements would be honoured in line with the original terms and conditions.

Fixed elements(Base salary, pension and other benefits)

• We recognise that salary levels drive other elements of the package and would therefore seek to pay a salary which is competitive, but no more than necessary to secure the individual.

• The Executive Director would be eligible to participate in our benefit and pension plans, including coverage under all Executive Director and colleague pension and benefit programmes in accordance with the terms and conditions of such plans, as may be amended by the Company from time to time.

• The Company may meet certain mobility costs, including relocation support, expatriate allowances, temporary living and transportation expenses in line with the prevailing mobility policy and practice for senior executives.

Short term incentives

• The individual will be eligible to participate in the annual bonus plan, in accordance with the rules and terms of the plan in operation at the time.

• The maximum level of opportunity will be no greater than that set out in the Policy Table above (i.e. 100% of base salary).

Long term incentives

• The individual will be eligible to participate in the RSP, in accordance with the rules and terms of the plan in operation at the time.

• The maximum level of opportunity will be no greater than that set out in the Policy Table above (i.e. 75% of base salary).

Buy-out awards • The Committee will consider what buy-out awards (if any) are reasonably necessary to facilitate the recruitment of a new Executive Director in all circumstances. This includes an assessment of the awards which would be forfeited on leaving their current employer.

• The Committee will seek to structure any buy-out awards such that overall they are no more generous in terms of quantum or vesting period than the awards due to be forfeited.

• In determining the quantum and structure of these commitments, the Committee will seek to provide broadly equivalent value and replicate, as far as practicable, the timing and performance requirements of the awards forfeited.

• Buy-out awards, if used, will be granted using the Company’s existing Long Term Incentive Plans to the extent possible, although awards may also be granted outside of these plans if necessary and as permitted under the Listing Rules.

• In the case of an internal hire, any outstanding awards made in relation to the previous role will be allowed to pay out according to their original terms.

• If promotion is part way through the year, an additional top-up award may be made to bring the Executive Director’s opportunity to a level that is appropriate in the circumstances.


(c) Service contracts and loss of office arrangementsThe Committee’s policy on service contracts and termination arrangements for Executive Directors is set out below. In principle, it is the Committee’s policy that there should be no element of reward for failure. The Committee’s approach when considering payments in the event of a loss of office is to take account of the individual circumstances, including the reason for the loss of office, Company and individual performance, contractual obligations of both parties as well as share plan and pension scheme rules.

The key employment terms and conditions of the current Executive Directors, as stipulated in their service contracts, are set out below:

Area Policy and operation

Notice period

• The service contract for Ian Kellett provides for a notice period of 12 months from the Company and six months from the individual.

• The service contract for Mike Iddon provides for a notice period from both the Company and the individual of six months.

• The service contract for Peter Pritchard provides for a notice period of 12 months from the Company and six months from the individual.

• New Executive Directors will be appointed on service contracts that have a notice period of not more than 12 months for both the Company and the individual.

• The Committee considers this policy provides an appropriate balance between the need to retain the services of key individuals for the benefit of the business and the need to limit the potential liabilities of the Company in the event of termination.

Contractual payments

• Executive Directors’ service contracts allow for termination with contractual notice from the Company or termination by way of payment in lieu of notice (PILON), at the Company’s discretion. Payment in lieu of notice would be made where circumstances dictate that the Executive Directors’ services are not required for their full notice period.

• Neither notice nor PILON will be given in the event of gross misconduct.

• Payment in lieu of notice will be limited to base salary and contractual benefits for the relevant notice period.

• There is no contractual entitlement to a payment under the annual bonus in respect of the notice period.

• Service contracts allow for mitigation if the individual finds alternative employment.

Short term incentives

• The Committee’s policy is not to award an annual incentive for any portion of the notice period not served.

• Where an Executive Director leaves office after the end of a performance year but before the payment is made, the executive will remain eligible for an annual bonus for that performance year, subject to the normal assessment of performance achieved over the period.

• Where an Executive Director leaves office during a performance year, any bonus would be at the Committee’s absolute discretion and would take into account performance and the time served during the period.

• No bonus will be paid in the event of gross misconduct.


Governance report


Area Policy and operation

Long term incentives

• The treatment of unvested long term incentive awards is governed by the rules of the relevant incentive plan.

CIP• Treatment under the CIP is dependent on the period elapsed

since the IPO.

a) Within the first 24 months following Admission

• Where an individual with a six month notice period voluntarily resigns less than 18 months following the date of Admission, they will forfeit their Invested Shares and their Matching Awards. This period ended on 17 March 2016.

b) Between 24 months and 36 months following Admission

• Where an individual with a six month notice period voluntarily resigns between 18 months and 30 months following the date of Admission (and completes at least two years’ service by working his notice period or being put on garden leave, or would have done so but is given PILON), they will retain their Invested Shares and may retain a portion of their Matching Award subject to achievement of performance targets measured over the first two years of the performance period. This period ended on 17 March 2017.

c) On or after 36 months following Admission

• Where an individual with a six month notice period voluntarily resigns on or after 30 months following the date of Admission (and completes at least three years’ service by working his notice period or being put on garden leave, or would have done so but is given PILON), they will retain their Invested Shares and, if a good leaver (as defined under the PSP), also their vested Matching Award, unless the Committee determines otherwise. Matching Awards vest after three, four and five years, subject to achievement of performance conditions at year three.

• Any participant who is dismissed for reasons of fraud or negligence will forfeit their Invested Shares and Matching Awards in full.

CSOP, PSP, RSP and SAYE• Under the CSOP, PSP and RSP, the default position is for both

vested (to the extent not yet exercised) and unvested awards to lapse upon a loss of office event.

• Where an individual is determined to be a “good leaver” (which includes for reasons of death, illness, injury, disability, retirement, sale or transfer out of the Group or any other reason at the discretion of the Committee) the Committee may allow vested awards (to the extent not yet exercised) to be retained and unvested awards to subsist until the relevant vesting date, subject to satisfaction of the performance conditions/financial underpin and pro-rated for time served.

• Alternatively, the Committee may, at its discretion, allow unvested awards to vest at an earlier date, having regard to the achievement of performance conditions/financial underpin to that date and the period of time that has passed since the date of grant. The Committee may choose to apply no reduction in the amount vesting if it is considered appropriate given the particular circumstances.

• Under the SAYE, the default position is for unvested awards to lapse upon a loss of office event.

• Where an individual is determined to be a “good leaver” in accordance with HMRC regulations (which include for reasons of death) unvested awards may vest pro-rata by reference to the period of time that has elapsed since the date of the grant and up to six months following the leaver event (12 months in the case of death).

Change in control

• The Committee’s policy is that service contracts should not provide for additional compensation on severance as a result of a change in control.

• Under the CSOP, the PSP, the Co-Investment Plan and the RSP, the Committee will determine whether and to what extent awards shall vest, taking into account all relevant factors including Company performance, the period of time elapsed since the date of grant and the interests of our shareholders.

• Under the SAYE, awards shall vest pro-rata by reference to the period of time that has elapsed since the date of grant and up to six months following the change of control.

Malus and clawback

Annual bonus payments and long term incentive awards (but not including SAYE awards) are subject to malus and clawback for a period beginning on the date of award and ending two years following vesting in the event of:

• a material misstatement of audited results;

• serious financial irregularity;

• any circumstances justifying summary dismissal of a participant from his office or employment with any Group Company including, but not limited to, dishonesty, fraud, misrepresentation or breach of trust;

• any material breach of a participant’s terms and conditions of employment; and/or any material violation of Company policy, rules of regulation.

• Malus and clawback will continue to apply to any bonus payments or awards retained by leavers and/or on a change of control.


External appointmentsExecutive Directors are permitted to hold an external appointment with the prior consent of the Board. Any fees may be retained by the individual.

Chairman and Non-Executive DirectorsThe Non-Executive Directors, including the Chairman of the Board, have letters of appointment which set out their duties and responsibilities. They do not have service contracts.

The key terms of the appointments are set out in the table below:

Provision Policy

Period • Initially appointed for a period of three years, subject to annual review and notice.

• In line with the UK Code, all Directors will seek annual re-appointment by shareholders at the AGM.

Appointment terms

• Three months’ notice by either the Company or the Non-Executive Director.

• Non-Executive Directors and the Chairman of the Board are not entitled to compensation on leaving the Board.

Fees • As set out on page 100.

Expiry of current term

• See page 64 for details of the expiry of the current term of Non-Executive Directors’ letters of appointment.

Availability of documentationService contracts and letters of appointment for all Directors are available for inspection by any person at our registered office in Handforth, Cheshire. They will also be available for inspection during the 30 minutes prior to the start of our AGM to be held in Handforth on 12 July 2018.

(d) Illustration of the Remuneration PolicyOur remuneration arrangements have been designed to ensure that a significant proportion of pay is dependent on the delivery of stretching short term and long term performance targets, aligned with the creation of sustainable shareholder value. The Committee considers the level of remuneration that may be received under different performance outcomes to ensure that this is appropriate in the context of the performance delivered and the value added for shareholders.

The charts on the right provide illustrative values of the remuneration package for Executive Directors under three assumed performance scenarios.

These charts are for illustrative purposes only and actual outcomes may differ from those shown.

Scenario Assumptions

Fixed payAll performance scenarios

• Consists of total fixed pay, including base salary, benefits and pension

– Base salary – salary effective as at 30 March 2018

– Benefits – amount estimated to be received by each Executive Director in FY19

– Pension – salary supplement effective as at 30 March 2018.

Variable payMinimum performance

• No pay-out under the annual bonus

• No vesting under the RSP

On-target performance

• 50% of the maximum pay-out under the annual bonus (i.e. 50% of salary)

• 100% vesting under the RSP (i.e. 75% of salary)

Maximum performance

• 100% of the maximum pay-out under the annual bonus (i.e. 100% of salary)

• 100% vesting under the RSP (i.e. 75% of salary)

1 Under the RSP, the normal maximum limit of 75% of salary has been shown.

2 All-colleague share plans (i.e. the SAYE) have been excluded.

3 Any legacy awards made in accordance with the policy for 2014 which Executive Directors hold have been excluded.

Group Chief Executive O�cer – Illustrative example under the RSP

100% 56% 39%

25%

19%35%

26%

Minimum MaximumMeetingexpectation

£1,415,000

£1,168,000

£550,000

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

100% 56% 39%

25%

19%

£397,000

£839,000

£1,016,000

35%

26%

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

Group Chief Financial O�cer – Illustrative example under the RSP

Minimum MaximumMeetingexpectation

Fixed pay Annual bonus RSP


Governance report


Chief Executive Chief Financial Officer

Base salary £494,200 £353,700

Benefits £11,500 £11,500

Pension £44,478 £31,833

Total fixed pay £550,178 £397,033

(e) Consideration of conditions elsewhere in the CompanyAs per the Committee’s terms of reference, we also review the pay and conditions of colleagues at levels below the Executive Directors. This includes approving the design of and determining targets for the principal performance related pay schemes, such as the bonus scheme operated by the Company, and approving the total annual payments made under such schemes. The Committee is also consulted concerning any major changes in colleague benefit and pay structures throughout the Group.

The remuneration package for all colleagues (including the Executive Directors) is reviewed on an annual basis and a consistent approach is applied at all levels. As part of the annual salary and benefits review, the Company takes into account industry standards, future legislative framework (including the national minimum wage, the national living wage, the Apprenticeship levy and the gender pay gap reporting requirements) and the financial and economic environment of the Group both internally and externally. The annual salary and benefits review is presented to the Committee with recommendations on remuneration throughout the colleague base, including a proposed salary increase to be applied to all colleagues’ wages, including the Executive Directors. As such, the Committee has regard to this Group-wide annual review process when setting its remuneration policy for Executive Directors.

Whilst our colleagues are not directly consulted as part of the process of determining pay, the output from our colleague listening groups and engagement surveys is considered when carrying out the annual salary and benefits review.

A significant number of our colleagues are also shareholders and so are able to express their views in the same way as other shareholders.

(f) Consideration of shareholder viewsThe Committee consulted extensively with the Company’s largest shareholders on the proposed changes to the Directors’ Remuneration Policy last year and we were pleased that all of our majority shareholders were very supportive of our remuneration principles and the proposed design.

The Committee remains committed to ongoing dialogue with the Company’s shareholder base and has offered the opportunity for dialogue with the major new shareholders who have joined the Company’s shareholder base in the last 12 months.

We will continue to monitor shareholder views when evaluating and setting ongoing remuneration strategy, and we are committed to consulting with shareholders prior to any significant changes to our Policy.

(g) Minor amendmentsThe Committee may make minor amendments to the Policy set out above (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) without obtaining shareholder approval for that amendment.


Annual Report on Remuneration

2. Annual Report on Remuneration

(a) Directors’ remuneration – report on implementation for the year ended 29 March 2018This section of the report sets out how the Policy, approved by shareholders at the Company’s Annual General Meeting (AGM) on 11 July 2017, has been applied in the financial year being reported on, and how it will be applied in the coming year. A copy of this current Policy can be found on the Group’s website investors.petsathome.com

The information presented from this section up until the relevant note on page 97 represents the audited section of this report.

(b) Single total figure of remuneration for Executive Directors for the year ended 29 March 2018The following table sets out the total remuneration for Executive Directors for the year ended 29 March 2018. All payments are in line with the Policy.

DirectorBase salary

(£)Benefits

(£)Pension

(£)Annual bonus

(£)

Long termincentives1

(£)Total

(£)

FY18

Ian Kellett 484,500 11,500 43,605 Nil2 36,348 575,953

Mike Iddon 346,800 11,500 31,212 259,330 Nil3 648,842

FY17

Ian Kellett 474,712 11,500 42,724 96,947 36,239 662,087

Mike Iddon 155,615 5,263 14,123 31,456 Nil4 206,457

Nick Wood 5 111,121 2,919 15,656 Nil Nil 129,696

1 Shares were awarded on 17 March 2014 under the Co-Investment Plan. Based on performance in the period March 2014 to March 2017 the performance conditions for these shares were measured and the Committee determined that 16.8% of the awards would vest. The vested award becomes exercisable in equal tranches, subject to continued employment, between May 2017 and March 2019. The first tranche of shares was released when the award vested in March 2017. The value for FY17 is based on the share price of 198.19p, being the average share price over the last three months of the performance period, being the period from 1 January to 30 March 2017. The second tranche of shares was released on 17 March 2018. The value is based on the share price of 178.3p being the share price on 16 March 2018, being the last working day before the shares were released.

2 Ian Kellett waived his bonus for FY18.

3 Mike Iddon did not receive a Co-Investment Plan Award in 2014 as this was prior to his joining the Company.

4 Mike Iddon was appointed on 17 October 2016 and his remuneration has been pro-rated from 17 October 2016 to 30 March 2017 including his annual bonus payment.

5 Nick Wood resigned as a Director on 4 April 2016; however, he remained with the Group in an advisory role until 1 July 2016. The remuneration shown for FY17 includes payments up to 1 July 2016.

Base salary – corresponds to the amount received during the relevant financial year.

Benefits – corresponds to the taxable value of benefits received during the relevant financial year and principally includes company car (or cash equivalent), life assurance and permanent health insurance.

Pension – corresponds to either the amount contributed to personal pension plans or the cash value of the salary supplement received during the relevant financial year. Executive Directors receive a Company pension contribution worth 9% of their salary or a cash allowance where the annual allowance has been reached.

Annual bonus – corresponds to the amount earned in respect of the relevant financial year. Details of how this was calculated are set out below.

Long term incentives – corresponds to the amount earned by the Executive Directors in respect of the relevant financial year. Details of how this was calculated are set out below.

Annual bonusWhilst Peter Pritchard was not an Executive Director for FY18, his bonus payout for the last financial year is included for completeness.

• The maximum annual bonus opportunity for Executive Directors and Peter Pritchard in respect of FY18 was 100% of base salary.

• For FY18, the annual bonus was based on EBITDA (75%) and free cash flow (25%): – the EBITDA performance measure was set at a Group level for Ian Kellett and Mike Iddon and at a retail level for Peter Pritchard.

– the free cash flow measure was set at a Group level for all three and is defined as net cash from operating activities, less net cash used in investing activities, interest paid and finance lease commitments and is stated before loans issued, non-underlying costs and acquisitions of subsidiaries.

• Measurement was over a 52 week period.


Governance report

The tables below show the targets and achieved payout levels:

Peter Pritchard

Achieved

Performance measures % Base salary Minimum Maximum £m %

Retail EBITDA 75% £81.5m £87.5m £87.47m 74.7%

Group free cash flow 25% £53.0m £57.0m £59.8m 25.0%

Ian Kellett and Mike Iddon

Achieved

Performance measures % Base salary Minimum Maximum £m %

Group EBITDA 75% £120.7m £129.4m £123.3m 49.8%

Group free cash flow 25% £53.0m £57.0m £59.8m 25.0%

Following a rigorous target setting process the Committee was confident that the targets stated above were stretching and required individuals to deliver performance which significantly exceeded business expectations in order to achieve full pay-out. This is evident in the bonus payout for Peter Pritchard, where Retail EBITDA achievement was just short of the maximum stretch level of performance. For Ian Kellett and Mike Iddon, the shortfall in the payout against the Group EBITDA performance measure reflects the performance of the veterinary business in FY18.

Notwithstanding the formulaic outturn of his bonus, in view of shareholder experience throughout the performance period and to ensure consistency of treatment with other colleagues who resigned during the financial year but received no bonus, Ian Kellett agreed that it was appropriate to waive his bonus.

Long term incentivesThe Committee determined in May 2017, and reported in the last Remuneration Report, the vesting level of the performance conditions attached to the Matching Awards granted under the March 2014 Co-Investment Plan for which the final year of performance was FY17. The Committee determined that 16.8% of the total awards had vested. The second tranche of Matching Shares was released on 17 March 2018.

(c) Single total figure of remuneration for Non-Executive Directors for the year ended 29 March 2018The following table sets out the total remuneration for Non-Executive Directors and the Chairman of the Board for the year ended 29 March 2018.

DirectorBasic fees

(£)

Additional fees

(£)

Remuneration Committee

Chairman (£)

Audit & Risk Committee

Chair (£)

Nomination & Corporate Governance Committee

Chairman (£)

Pets Before Profit/CSR

Committee Chair

(£)

Total single figure 2018

(£)

Total single figure 2017

(£)

Tony DeNunzio 200,000 n/a n/a n/a n/a n/a 200,000 200,000

Dennis Millard 50,000 20,0001 n/a n/a n/a n/a 70,000 70,0000

Paul Coby 2 13,846 n/a n/a n/a n/a n/a 13,846 50,000

Tessa Green 50,000 n/a n/a n/a n/a 10,000 60,000 61,154

Amy Stirling 3 14,038 n/a n/a 1,462 n/a n/a 15,500 61,154

Paul Moody 50,000 n/a 10,000 n/a n/a n/a 60,000 60,000

Nicolas Gheysens 4 Nil n/a n/a n/a n/a n/a Nil n/a

Stanislas Laurent 5 41,651 n/a n/a n/a n/a n/a 41,651 n/a

Sharon Flood 6 42,500 n/a n/a 5,424 n/a n/a 47,924 n/a

1 The additional fee paid to Dennis Millard is in respect of his position as Deputy Chairman of the Board.

2 Paul Coby resigned from the Board on 10 July 2017.

3 Amy Stirling stepped down as Chair of the Audit Committee on 23 May 2017 and resigned from the Board on 11 July 2017.

4 Nicolas Gheysen was appointed to the Board on 2 December 2016 as KKR’s nominated director on the Board. As Nicolas was representing KKR, it was agreed that he would not receive any Directors’ fees in respect of his appointment. He resigned from the Board on 28 November 2017.

5 Stanislas Laurent was appointed to the Board on 25 May 2017.

6 Sharon Flood was appointed to the Board on 25 May 2017 and took over as Chair of the Audit Committee on 11 July 2017.

Annual Report on Remuneration continued


(d) Scheme interests awarded during the financial yearIn 2017, Executive Directors received RSP awards in line with the Policy as follows:

Executive Director Date of award

Number of shares awarded

under the RSPGrant price of

RSP awards% of salary for

total awardsPerformance

period end date

Ian Kellett 25 July 2017 229,548 Nil cost awards 75% 27 March 2020

Mike Iddon 25 July 2017 164,308 Nil cost awards 75% 27 March 2020

All awards are made as performance shares based on a percentage of salary and the value is divided by the closing share price the day before the grants, being 158.3p.

The awards were made subject to the satisfaction of the achievement of the TSR underpin at the end of the performance period of the three financial years (FY18-FY20). An absolute TSR greater than the average TSR measured over the three months before the start of the performance period must be achieved for the awards to vest. In accordance with the Policy, 50% of the awards will vest after three years and 25% of the award will vest in each of years four and five.

(e) Payments for loss of officeNo payments for loss of office were made during the financial year.

Leaving arrangements for Ian Kellett Ian Kellett resigned from the Board with effect from 26 April 2018. To ensure a smooth transition and provide support to the new CEO, he has worked his notice period and will leave the Group on 31 May 2018. Ian will not receive a termination payment, as he has resigned. During the period of his notice, Ian will receive his salary and contractual benefits up to his date of termination on 31 May 2018. Notwithstanding the formulaic outturn of his bonus, in view of shareholder experience throughout the performance period and to ensure consistency of treatment with other colleagues who resigned during the financial year but received no bonus, Ian Kellett agreed that it was appropriate to waive his bonus.

Ian’s third tranche of Matching Award under the Co-Investment Plan will lapse in line with the early leaver provisions of the plan rules. His 2016 PSP and CSOP awards and 2017 RSP awards will also lapse in line with the early leaver provisions.

(f) Payments to past DirectorsNo payments were made to past Directors during the year.

(g) Statement of Directors’ shareholding and share interestsThe Committee believes that colleague share ownership is an important means to support long term commitment to the Company and the alignment of colleague interests with those of shareholders.

Executive Directors are subject to a shareholding requirement of 200% of base salary, which should be built up over a period of five years. A similar policy applies to the Executive Management Team. The Committee reviews share ownership levels annually.

Current shareholding levels for Directors are set out in the table below:

Number of shares

Director

Shareholding requirement

as a % of salary (target – % achieved)1

Shares owned outright at

29 March 2018

Interests in share incentive schemes,

awarded without performance conditions at

29 March 2018

Interests in share incentive schemes,

awarded subject to performance

conditions at 29 March 2018

Shares owned outright at

31 March 2017

Ian Kellett 1,414% 4,053,484 0 496,8472 4,047,056

Mike Iddon 37% 76,329 0 364,025 45,996

Tony DeNunzio – 3,313,026 – – 3,158,026

Dennis Millard – 30,000 – – 30,000

Tessa Green – 40,816 – – 40,816

Paul Moody – 27,470 – – 27,470

Stanislas Laurent 30,000

Sharon Flood 60,088

1 For the purposes of determining the target shareholding achieved, we have used the individual’s salary and the closing share price (169 pence) as at 29 March 2018 and the shares owned outright at the same date.

2 The figure includes all the second and third tranche of Matching Awards that vested at the end of the vesting period on 30 March 2017. 18,285 are exercisable in the second tranche.

This represents the end of the audited section of the report.


Governance report


(h) TSR performance chartThe Company’s shares were admitted to the premium listing segment of the Official List maintained by the UK Financial Conduct Authority and to trading on the London Stock Exchange plc’s main market for listed securities on 17 March 2014. The chart below shows performance from that date until the end of FY18. This disclosure will be expanded in subsequent years in line with the regulations.

70

80

90

100

110

120

130

Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018

Pets at Home FTSE 350

CEO 2013/20141 2014/2015 2015/2016 2016/2017 2017/2018

CEO single figure of remuneration Ian Kellett2 – – – 662,087 575,953

Nick Wood3 19,460 790,461 962,2244 129,696 n/a

Annual bonus pay-out (as % of maximum opportunity)

Ian Kellett – – – 20.4% n/a5

Nick Wood 73% 75% 60% – n/a

Long term incentive vesting (as % of maximum opportunity)

Ian Kellett – – – 16.8% n/a6

Nick Wood n/a n/a 96%4 – n/a

1 In FY14, the single figure of remuneration relates to the period 17 March 2014 to 27 March 2014.

2 Ian Kellett was appointed on 4 April 2016.

3 Nick Wood resigned as an Executive Director on 4 April 2016, however, he continued in the business until 1 July 2016. His payment in FY17 relates to the period from 1 April 2016 to 1 July 2016.

4 Under the early leaver provisions of the plan rules, Nick Wood received 19.2% of his total Matching Award under the Co-Investment Plan, as shown in the single figure table. Given that this included time pro rating, with performance against the performance conditions being at 96% of maximum, the latter is shown here and the value of £198,168 of the Matching Awards.


(i) Percentage change in remuneration of the Group CEOThe table below sets out the increase in total remuneration of the CEO and that of all colleagues:

% change in base salary FY17 to FY18

% change in bonus earned FY17 to FY18

% change in benefits FY17 to FY18

Chief Executive 2.0% n/a1 No change

All colleagues 2 2.0% 56.7% No change


2 All colleague information is presented by comparing the average colleague information in FY17 to the average colleague information in FY18.


(j) Relative importance of the spend on pay The following table shows the relationship between the Group’s EBITDA, distributions to shareholders and the total remuneration paid to all colleagues.

FY18 £m

FY17 £m

EBITDA 1 123.3 130.5

Returned to shareholders:

Dividend 37.3 39.9

Payments to colleagues:

Wages and salaries 181.0 161.1

1 The Committee considers that EBITDA is an important KPI for the Company and provides shareholders with additional context as to how the business has performed financially in the last two years.

(k) Dilution limitsIn accordance with the IA Guidelines, the Company can satisfy awards under its colleague share plans with new issue shares up to maximum of 10% of its issued share capital in a rolling ten-year period and within this 10% limit, the Company can only issue 5% of its issued share capital to satisfy awards under discretionary plans (i.e. the CSOP, PSP and RSP). As at 29 March 2018, the Company’s dilution position was 2.6% for all plans and 1.9% for the executive plans.

(l) External appointmentsExecutive Directors are entitled to accept one external appointment outside the Company with the consent of the Board. Any fees received may be retained by the Director.

As at the date of this report, neither of the Executive Directors held an external appointment for which they receive a fee.

(m) Non-Executive Directors – letters of appointmentA summary of the Non-Executive Directors’ letters of appointment is contained on page 93 of the Policy.

3. Statement of implementation for FY19This section provides an overview of how the Committee is proposing to implement our Policy in FY19.

Base salaryBase salaries were reviewed with effect from 30 March 2018 and the salary of the Group CFO was increased by 2% which mirrors the increase generally awarded to colleagues in the Group. The Group CEO’s salary was not increased as he had resigned.

Executive Director Base salary

Chief Executive Officer £484,500

Chief Financial Officer £353,700

BenefitsThe Committee sets benefits in line with the policy set out on page 86 of the Appendix. There are no changes proposed to the benefit framework in FY19.

PensionsDespite the ability in the policy to permit contributions up to 15% of base salary, there is no increase proposed to salary supplement levels for the Executive Directors in FY19. The table below shows salary supplements for FY19.

Executive Director % of salary

Ian Kellett 9%

Mike Iddon 9%

Annual bonusThe maximum annual bonus opportunity for Executive Directors in respect of FY19 will remain at 100% of base salary.

The annual bonus framework will be in line with that presented in the policy table on page 87. As highlighted in the Chairman’s letter, during the year the Committee reviewed the annual bonus framework for FY19, with a view to ensuring that it remains appropriate for the business. It was decided, following this review, to replace EBITDA with PBT as the profit measure within the annual bonus plan. Historically EBITDA has been used as the profit measure for bonus purposes, reflecting the focus on EBITDA in our internal business unit reporting and as a key external measure. The change to PBT will enable closer scrutiny of management’s control and use of capex. PBT will make up 75% of the annual bonus (the same as for EBITDA), with free cash flow the remaining 25%. The Committee adopted a rigorous approach to setting the bonus targets for FY19, discussing the targets at two Committee meetings. In order to satisfy itself that the targets were stretching, the Committee looked at a range of internal and external data points, including historical targets and performance against them, strategic plan targets, analyst consensus and TSR forecast growth for both the FTSE 250 and a select group of retailers.

Although the targets remain commercially sensitive at this time, we will provide shareholders with full disclosure of the PBT and free cash flow targets in next year’s report.

As for FY18, the annual bonus will be subject to malus and clawback provisions. This provides the Committee with the ability to take back amounts previously paid out for a period of up to two years under certain circumstances, including misstatement and misconduct.


Governance report


Long term incentive awardsIt is proposed that awards under the RSP will be made in FY19 shortly after the preliminary results announcement at 75% of salary for Executive Directors in line with the Policy.

SharesaveThe Company intends to operate the Sharesave scheme again for FY19. The maximum monthly savings will be retained at £500 per month. Executive Directors are eligible to participate.

Non-Executive Director remunerationThe fees paid to the Non-Executive Directors have been reviewed and they will remain at the same level for FY19. The table below shows the Non-Executive Director fee structure for FY19:

FY19

Chairman of the Board (all-inclusive fee) £200,000

Basic Non-Executive Director fee £50,000

Board Committee Chairman fee £10,000

Deputy Chairman £20,000

There are no fees paid for membership of Board Committees.

Peter Pritchard’s remuneration as CEOPeter Pritchard took over as CEO from Ian Kellett on 27 April 2018. His base salary on appointment is £494,200. This base salary is below other typical salaries for comparable roles and the Committee may over time approve salary increases higher than the broader colleague population, subject to Peter’s performance in the role and in order to ensure that Peter’s base salary is competitive. Peter, as CEO, will have a maximum bonus opportunity of 100% of base salary and an RSP award of 75% of base salary. His pension and other benefits on appointment are in line with the Policy.

The Remuneration CommitteeShareholder context for the Committee’s activitiesDuring the year, the Committee received independent advice on executive remuneration matters from Willis Towers Watson (WTW).

WTW is a member of the Remuneration Consultants Group and, as such, voluntarily operate under the code of conduct in relation to executive remuneration consulting in the UK. The Committee has reviewed the advice provided by WTW during the year and is comfortable that it has been objective and independent. Total fees received by WTW in relation to the remuneration advice provided to the Committee during FY18 amounted to £38,200 (£58,034 FY17) based on the required time commitment.

During FY18 the Committee also received support from Travers Smith LLP on the terms of the discretionary and all-colleague share plans.

Committee membership and meetings The Directors listed below in the table served on the Committee during the year. The Committee met three times during FY18 and the Committee members’ attendance is also shown in the table below.

Member Period from ToMeetings attended

Paul Moody (Chairman) 1 April 2017 To date 2

Dennis Millard 1 April 2017 To date 3

Tessa Green 1 April 2017 To date 3

Amy Stirling 1 April 2017 11 July 2017 1

Sharon Flood 11 July 2017 To date 2

The individuals listed in the table below, none of whom were Committee members, attended at least part of a meeting by invitation during the year.

Attendee Position

Tony DeNunzio Chairman of the Board

Ian Kellett Group CEO

Louise StonierChief People and Legal Officer and Group Company Secretary

Peter Pritchard CEO of Retail

Stanislas Laurent Non-Executive Director

None of the individuals attended part of any meeting in which their own compensation was discussed.

GovernanceThe Board and the Committee consider that, throughout FY18 and up to the date of this report, the Company has complied with the provisions of the UK Corporate Governance Code relating to Directors’ remuneration.


Shareholder votingAt the Annual General Meeting on 11 July 2017, the total number of shares in issue with voting rights was 500,000,000. The resolution to approve the Directors’ Remuneration Report received the following votes from shareholders:

Votes for1 %2 Votes against % Votes total % of isc3 Votes withheld4

Ordinary resolutions

2 To approve the Directors’ Remuneration Report for the year ended 30 March 2017

382,375,480 98.87 4,350,053 1.12 386,725,533 77.35 3,266,171

3 To approve the Directors’ Remuneration Policy

329,361,414 85.16 57,363,515 14.83 386,724,929 77.34 3,266,775

4 To approve the Pets at Home Group Plc Restricted Stock Plan (the “RSP”)

328,903,767 84.42 60,679,437 15.58 389,583,204 77.92 26,057

1 Votes “for” include discretionary votes.

2 Percentages above are rounded to two decimal places.

3 Issued share capital at meeting date: 500,000,000.

4 A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes “for” and “against” a resolution.

Annual General MeetingAs set out in my statement on page 82, our Directors’ Remuneration Report will be subject to an advisory vote at our AGM to be held on 12 July 2018.

On behalf of the Board

Paul MoodyChairman of the Remuneration Committee 21 May 2018


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